QLess: SaaS Pioneer's 91-Day Subchapter V Emergence

QLess, Inc., the Pasadena-based queue management software provider, filed for Chapter 11 bankruptcy protection under Subchapter V on June 19, 2024, in the United States Bankruptcy Court for the District of Delaware. The filing followed months of shareholder litigation and legal expenses while the company reported improving operational metrics. QLess confirmed its reorganization plan on September 16, 2024, and emerged from bankruptcy on September 18, 2024—completing a restructuring in approximately 91 days.

Company Background and Market Position

QLess was founded in 2007 in Pasadena, California, by entrepreneur Alejandro (Alex) Bäcker with a mission to reduce the time customers spend waiting in physical lines. The company's original software solution, branded as Linebuster, allowed end-users to check wait times, join queues remotely via smartphone, and receive real-time notifications regarding their expected service time. This approach let customers avoid traveling to a location to obtain a paper ticket and sit in a waiting room.

The company built its customer base in higher education institutions and local government offices, markets that constituted more than 80% of its customer base through 2022. QLess eventually expanded into healthcare—specifically clinical and independent labs performing high-volume blood draws, glucose tests, and drug screens—as well as theme parks and radiology facilities. By mid-2023, the company announced it had surpassed 200 million visits managed through its platform, with 100% year-over-year growth in healthcare alone. The platform processed approximately 30 million visits annually by the petition date, with management targeting one billion cumulative visits by 2028-2030.

The company had previously celebrated 100 million visits in 2017.

QLess raised $19 million in total funding over three rounds, including a Series B led by Altos Ventures totaling $10 million in November 2018. The company marketed itself as a cloud-based queue management platform in a market projected to exceed $1 billion by 2030. Market research valued the queue management sector at approximately $542 million in 2024, with projections reaching $908 million by 2033.

2021 Recapitalization and Leadership Transition

In late 2021, private equity firm Palisades Growth Capital II acquired a controlling stake in QLess through a recapitalization transaction that resulted in a change of control. Palisades, which had invested in QLess for approximately four years prior, became the largest equity owner holding roughly 35% of all outstanding shares. The recapitalization redeemed pre-merger common and preferred shareholders for cash, warrants, or both.

The leadership transition had begun earlier. In 2019, founder Alex Backer was removed as CEO and board member following substantiated employee complaints. James Harvey, a software executive with 25 years of experience at companies including PeopleSoft, SAP, and Oracle, joined as CEO and board member in April 2022. Under Harvey's leadership, QLess focused on developing Tempo, a next-generation platform offering more sophisticated queue management, real-time analytics, virtual meeting integration, and advanced appointment scheduling.

Despite years of negative EBITDA, Annualized Recurring Revenue reached a peak of $7.8 million in August 2021, contracted briefly to $7.5 million, then grew to $9.1 million by the petition date. Customer retention rates improved from approximately 80% in 2022 to a projected 90%.

Capital Structure and Prepetition Debt

QLess entered bankruptcy with prepetition secured debt to Celtic Bank Corporation under a Business Loan Agreement dated February 21, 2023. Celtic held a first-priority security interest in substantially all of QLess's assets.

Despite improving revenue metrics, QLess projected a net operating loss of approximately $5 million for 2024 and carried cumulative losses of $35-40 million since inception. Management anticipated reaching EBITDA neutrality by the end of fiscal year 2025.

The company maintained five bank accounts across three institutions—Celtic Bank, Brex Treasury, and BridgeBank—as part of a cash management system essential to daily operations. The Brex account served as the primary operating account tied to QLess's corporate credit card, while BridgeBank handled payroll processing through Insperity, the company's professional employment organization.

Events Precipitating the QLess Bankruptcy Filing

In December 2023, several former shareholders including founder Alex Backer and members of his family filed a five-count civil complaint in the Delaware Chancery Court against QLess and eight other defendants. The suit named Palisades Growth Capital II, current and former board members, and two former CEOs. The plaintiffs alleged breaches of fiduciary duties and violations of QLess's articles of incorporation arising from the 2021 recapitalization transaction.

QLess and its co-defendants maintained the lawsuit lacked merit. Within six months of early-stage proceedings, QLess had spent approximately $1 million in legal fees. Defense counsel estimated total litigation costs could reach $8 million if the case proceeded to judgment—a figure that excluded potential indemnification liabilities to co-defendants whose directors-and-officers insurer had denied coverage.

Backer submitted a separate arbitration claim in June 2022 alleging approximately $500,000 in unpaid pre-2016 compensation, plus additional amounts for severance, a change-of-control bonus of roughly $400,000, and consulting fees totaling approximately $660,000. QLess disputed the claims and asserted affirmative defenses.

The company reported R&D costs supporting two software platforms: the Linebuster and Tempo systems. This "bubble cost" of platform transition—including AWS hosting expenses for dual systems—limited profitability. The company implemented expense reduction measures on April 1, 2024, achieving approximately $2 million in annualized savings primarily through headcount reduction, while litigation expenses continued.

Subchapter V Strategy and DIP Financing

QLess elected to pursue reorganization under Subchapter V of Chapter 11, enacted under the Small Business Reorganization Act of 2019. Subchapter V offers advantages for qualifying debtors: no requirement for a creditors' committee, reduced quarterly fees and streamlined procedures, and appointment of a trustee with a facilitative rather than managerial role. Data indicates Subchapter V debtors confirm plans within approximately six months on average, compared to ten months for traditional Chapter 11 cases, with professional fees averaging roughly $500,000 less.

To fund operations during the restructuring, QLess negotiated a $3.5 million junior secured debtor-in-possession financing facility with certain of its largest shareholders, including entities affiliated with Palisades. The facility carried a 15% per annum interest rate (compounded monthly), a 2% default rate increase, and a 1.50% commitment fee at maturity. The structure provided $1.0 million upon entry of the interim order, with up to $2.5 million additional upon final approval—amounts exceeding $3.0 million required DIP lender budget consent.

Before securing the insider facility, the company's CRO contacted three alternative funding sources about providing DIP financing on a junior secured basis. None expressed interest in moving forward.

To address potential conflicts in shareholder-provided DIP financing, QLess retained M. Freddie Reiss as an independent director on June 14, 2024—five days before the petition date. Reiss, who had no prior relationship with QLess or any of its shareholders, negotiated the DIP facility terms. The company also engaged Andrew De Camara of GlassRatner (now B. Riley) as chief restructuring officer to prosecute the case. The court granted parties a 75-day challenge period from interim order entry to contest the prepetition lender's claims or liens.

The DIP facility was structured as junior secured debt subordinate to Celtic Bank's prepetition obligations. The parties' intention from the outset was to convert DIP obligations into equity under a confirmed plan.

DIP Budget Controls and Oversight.

The DIP facility included operational controls. QLess operated under a 13-week rolling cash budget with a 15% variance limitation on disbursements for each three-week period. The maturity date was set for September 13, 2024, ahead of the targeted plan confirmation.

The DIP lenders received second-priority liens on all company assets subordinate to Celtic Bank's prepetition security interests, plus first-priority liens on any previously unencumbered assets. The facility also carried superpriority administrative expense status under Section 364(c)(1) of the Bankruptcy Code. The court entered the interim DIP order on June 21, 2024, providing immediate access to $1.0 million, with the final DIP order following on July 17, 2024.

The DIP facility included a professional fee carve-out. The carve-out provided a $250,000 cap for professional fees incurred after a Carve-Out Trigger Notice, plus an additional $25,000 reserved for Subchapter V trustee expenses. Celtic Bank, as prepetition lender, was entitled to reimbursement of up to $50,000 monthly for its own professional fees.

Professional Retentions and Case Administration

QLess retained counsel and advisors for the Subchapter V case. Most retention orders were entered by mid-July 2024.

First Day Relief.

The court entered First Day orders allowing QLess to maintain operations:

To control administrative costs, QLess obtained court authorization to retain ordinary course professionals under streamlined procedures. The OCP order established compensation caps of $35,000 per professional per month (calculated as a rolling three-month average) and $105,000 per professional per quarter. Any fees exceeding these thresholds required formal fee applications and court approval, allowing the debtor to continue using existing service providers without individual retention applications.

GlassRatner filed its final fee application on October 24, 2024, and the court approved it on November 8, 2024, following certification of no objection.

Emergence and Case Outcome

The court confirmed the reorganization plan on September 16, 2024, and QLess emerged from bankruptcy on September 18, 2024—approximately 91 days after filing.

Contested Confirmation and Founder Objections.

QLess filed its initial Subchapter V plan on July 19, 2024, just 30 days after the petition date, followed by an amended plan on August 21, 2024. The same day, Alex Bäcker and certain preferred shareholders filed an objection challenging both QLess's Subchapter V eligibility and the proposed plan terms.

On August 22, 2024, the objecting parties filed a motion for expedited consideration and a separate motion under Bankruptcy Rule 3018 seeking to designate votes on the plan. The following day, they moved to continue the confirmation hearing. These motions resulted in a contested hearing before Judge Brendan Linehan Shannon.

Palisades Growth Capital, as the DIP lender with the most at stake in plan confirmation, retained Hogan Lovells US LLP as counsel to defend against the objections. Three Hogan Lovells attorneys—Richard L. Wynne, Kaitlyn A. Hittelman, and Jon M. Talotta—were admitted pro hac vice to appear in the Delaware proceedings. QLess filed its brief in support of plan confirmation on August 23, 2024, with a supplemental brief following on September 11, 2024, responding to the shareholders' supplemental objection filed September 7, 2024.

The voting results reflected disputed ballots:

The Class 4 outcome hinged on disputed ballots. Excluding ballots tied to claims under debtor objection—primarily the Bäcker parties' arbitration and lawsuit claims—Class 4 unanimously accepted the plan (5 of 5 ballots, 100% of ~$456,561). Including the disputed ballots, Class 4 rejected by both number (~54.55% voting no) and dollar amount (89.77% of $4.46 million voting to reject).

Because an impaired class rejected the plan, the court confirmed under §1191(b) Subchapter V cramdown, finding that QLess satisfied all cramdown requirements including commitment of projected disposable income. The practical consequence: general unsecured creditors received the "Class 4 rejects" treatment—a pro rata share of $75,000 in projected disposable income (~10.2% estimated recovery) rather than the $300,000 GUC Fund (~61.5% recovery) that would have applied had Class 4 accepted.

QLess discharged claims arising from the shareholder litigation and converted DIP financing to equity. Under the confirmed plan, the DIP facility converted into New Preferred Shares representing approximately 22% of fully diluted equity (reflecting the Class 4 rejection scenario), with a $750,000 portion restructured as an administrative expense claim bearing 15% interest and a three-year maturity. Celtic Bank's secured claim rode through with amended covenants and waived pre-petition defaults. The plan reserved up to 10% of equity for a Management Incentive Plan, while existing common shareholders retained their interests subject to dilution. Class 6 warrants were canceled without distribution.

Post-emergence, QLess maintained its fully remote workforce spanning North America and Europe. The company continued operating its queue management platform serving clients in higher education, local government, healthcare, and other verticals.

Following the effective date, the Subchapter V trustee filed a Report of No Distribution on February 21, 2025, confirming no separate trustee-administered funds required distribution. QLess filed its Final Report and Motion for Final Decree on February 27, 2025 (Dkt. #230), certifying substantial consummation of the plan. The Certification of No Objection was filed March 14, 2025 (Dkt. #235), with a final decree hearing scheduled for March 26, 2025. The court entered a Final Decree closing the case on March 14, 2025—approximately nine months from petition to administrative closure.

The Subchapter V Plan (Dkt. #70) and Amended Plan (Dkt. #122) were the most-referenced documents, with 3 and 2 cross-references respectively.

Case Timeline

Industry Context

The QLess case occurred amid broader trends in technology company restructuring. PE-backed bankruptcies reached record levels in 2024. The 2024 bankruptcy environment saw elevated restructuring activity across technology sectors.

Subchapter V's streamlined procedures allowed confirmation in under 100 days. Legal scholars have examined both advantages and disadvantages of the SBRA framework.

Frequently Asked Questions

What type of bankruptcy did QLess file?

QLess filed under Subchapter V of Chapter 11, a streamlined reorganization process created by the Small Business Reorganization Act of 2019 for qualifying small business debtors.

How long did the QLess bankruptcy take?

QLess emerged from bankruptcy in approximately 91 days—filing on June 19, 2024, and emerging on September 18, 2024. The case was administratively closed on March 14, 2025.

What triggered the bankruptcy filing?

A shareholder lawsuit filed in December 2023 by founder Alex Backer and family members. QLess had spent $1 million in legal fees within six months, with total defense costs projected at $8 million.

Who provided DIP financing?

Palisades Growth Capital-affiliated entities provided a $3.5 million junior secured DIP facility at 15% interest, which converted to equity under the confirmed plan.

What did general unsecured creditors recover?

Due to the cramdown confirmation, general unsecured creditors received approximately 10.2% recovery (pro rata share of $75,000) rather than the 61.5% recovery ($300,000 GUC Fund) that would have applied had Class 4 accepted the plan.

Why did Class 4 reject the plan?

Including disputed ballots from the Backer parties' arbitration and lawsuit claims, Class 4 rejected by 89.77% of dollar amount. Excluding those disputed claims, Class 4 unanimously accepted.

What happened to founder Alex Backer's claims?

The shareholder lawsuit and arbitration claims filed by Backer were discharged under the confirmed plan. The claims had alleged breaches of fiduciary duties arising from the 2021 recapitalization.

What is QLess's current status?

QLess emerged as a reorganized company and continued operating its queue management platform serving higher education, local government, and healthcare clients. The case was closed on March 14, 2025.

Who was the Subchapter V trustee?

Joseph M. Mulvihill served as the Subchapter V trustee in a facilitative rather than managerial role.

What debt remained after emergence?

Celtic Bank's secured claim rode through with amended covenants. A $750,000 portion of the DIP facility was restructured as an administrative expense claim with 15% interest and three-year maturity. The remaining DIP debt converted to 22% equity.

Who is the claims agent for QLess?

Verita Global (fka Kurtzman Carson Consultants) serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

For comprehensive analysis of technology and SaaS company bankruptcies, visit the ElevenFlo bankruptcy blog.