QLess: Subchapter V Restructuring Resolves Shareholder Litigation

QLess, Inc., a Pasadena software company focused on virtual queue management, filed chapter 11 under Subchapter V on June 19, 2024, in the U.S. Bankruptcy Court for the District of Delaware. The filing came as the company reported $9.1 million in annualized recurring revenue, projected a roughly $5 million operating loss for 2024, and said a shareholder lawsuit had consumed ~$1 million in legal fees over six months. The plan was confirmed under cramdown on September 17, 2024, and the case was closed by final decree on March 14, 2025.

The restructuring converted a $3.3 million DIP claim held by Palisades Growth Capital into equity. General unsecured creditors voted to reject the plan, and the court confirmed it under § 1191(b), with the debtor estimating a 10.2% recovery from three years of projected disposable income.

Debtor(s)	QLess, Inc.
Court	U.S. Bankruptcy Court, District of Delaware
Case Number	24-11395
Petition Date	June 19, 2024
Confirmation Date	September 17, 2024
Judge	Hon. Brendan Linehan Shannon
DIP Facility	$3.5M from Palisades Growth Capital II, L.P.; 15% interest; junior to Celtic Bank secured debt

Company Background and Pre-Filing Distress

QLess was founded in 2007 in Pasadena, California, by Alex Bäcker and Tim McCune. The company sells queue management software that lets customers join lines remotely through web, kiosk, and mobile interfaces instead of waiting in person. Early adoption came from higher education institutions, local governments, and theme parks, which the company said made up more than 80% of its initial customer base.

The platform later expanded to include appointment scheduling, customer satisfaction ratings, operational analytics, and multi-location queue management. QLess also launched a healthcare vertical serving clinical and independent labs. By July 2023, QLess said it had served 200 million visitors through its platform, reported 100% growth in healthcare over the prior 12 months, and said it served more than 300 cities and counties and 200 colleges and universities across six continents.

In 2013, QLess expanded its international presence through the acquisition of the Supalocal queue management business, adding clients in the United Kingdom and Australia.

Palisades Growth Capital acquisition. In November 2021, Palisades Growth Capital acquired QLess in a transaction that included both refinancing and new capital. Palisades, along with a syndicate of family offices, completed the deal; Palisades had first invested in QLess approximately four years earlier, with co-managing partner Paul D'Addario serving on the company's board. Mark Tapling, then serving as CEO, stated that QLess had over 500 customers. Financial terms were not disclosed. The transaction was structured as a merger/recapitalization at an enterprise value of $24.7 million, with pre-merger shareholders having their shares redeemed for cash or warrants.

Leadership transition and revenue growth. James Harvey was appointed CEO in April 2022. Under Harvey, annualized recurring revenue increased from $7.5 million to $9.1 million, and the company said customer retention improved from about 80% toward a forecast of 90%. Derek Francis was appointed chief revenue officer in 2023.

Dual-platform costs and operating losses. Despite revenue growth, QLess operated with negative EBITDA and carried approximately $35 million to $40 million in cumulative net operating losses. The First Day Declaration said the company was bearing "bubble cost" from bringing its Tempo platform online, including higher research and development expense and cloud infrastructure costs, while still supporting the legacy Linebuster product. The company projected an operating loss of about $5 million for 2024.

On April 1, 2024, QLess implemented a cost reduction that produced approximately $2 million in annualized savings, primarily through headcount reduction. The company's prepetition debt to Celtic Bank Corporation stood at approximately $6,250,000, secured by a first-priority interest in substantially all assets, with unsecured trade payables estimated at roughly $400,000.

Shareholder Litigation and the Bäcker Dispute

The shareholder conflict predates the bankruptcy by several years. In June 2019, the QLess board removed founder Alex Bäcker as CEO following a special committee investigation that found Bäcker had retaliated against employees and made demeaning comments. On September 7, 2019, the board hired Kevin Grauman as the new CEO.

Board control dispute. On the eve of a board meeting, an independent director resigned, giving Bäcker a board majority. Bäcker then presented a counter-agenda at the meeting and took control of the company. Palisades Growth Capital II, L.P. filed a complaint in the Delaware Court of Chancery. On March 26, 2020, the Court of Chancery invalidated Bäcker's board actions as inequitable under the Schnell doctrine. The Delaware Supreme Court affirmed the ruling on January 15, 2021.

The 2021 merger dispute. The Palisades-guided recapitalization in October 2021 became the focal point of additional litigation. The eligibility objection alleged that the transaction was structured as a "Deemed Liquidation Event" in which nearly all merger consideration flowed to Palisades, with no consideration going to common shareholders. The objectors contended that the board accepted an enterprise value of $24.7 million — an amount they characterized as less than prior valuations and alternate bids.

December 2023 shareholder lawsuit. Bäcker and several former shareholders and family members filed a five-count civil complaint in the Delaware Court of Chancery against QLess, Palisades, and other defendants, alleging breaches of fiduciary duties and violations of the debtor's articles of incorporation. A separate arbitration proceeding involved claims by Bäcker for approximately $500,000 in unpaid pre-2016 compensation, a $400,000 change-of-control bonus, and $660,000 for consulting work — totaling approximately $1.56 million in disputed amounts.

The First Day Declaration stated that QLess had spent approximately $1 million in legal fees defending the suit over six months of early-stage litigation, with estimates to litigate to completion reaching $8 million. The uncertainty and expense had interfered with the debtor's ability to pursue potential business combinations with strategic partners.

DIP Financing and First-Day Relief

QLess secured a $3.5 million DIP facility from Palisades Growth Capital Fund II, L.P. and affiliates, which owned about 35% of the debtor's shares. The facility was structured in two tranches: up to $1.0 million upon entry of the Interim DIP Order on June 21, 2024, and up to $2.5 million upon entry of the Final DIP Order on July 17, 2024.

The DIP carried a 15% annual interest rate compounded monthly, with a 1.50% commitment fee and a default interest premium of 2.00%. The maturity date was the earliest of September 13, 2024, an event of default, consummation of a third-party asset sale, or the plan effective date.

Lien structure. The DIP lenders received second-priority liens on all debtor assets subordinate to Celtic Bank's first-priority position, plus first-priority liens on any unencumbered assets. The facility also carried superpriority administrative expense status under §§ 364(c)(1), 503(b), and 507(b).

Case milestones. The DIP required the debtor to file a Subchapter V plan by July 1, 2024, obtain a final DIP order within 28 days, and secure a confirmation order within 75 days of the petition date. QLess met all three milestones.

First-day relief. The court entered interim orders on June 21, 2024, authorizing payment of prepetition employee wages (approximately $90,000 outstanding, with $47,000 due within 21 days), taxes and fees, maintenance of bank accounts, and retention of ordinary course professionals. The debtor retained Pachulski Stang Ziehl & Jones LLP as bankruptcy counsel, Sherwood Partners, Inc. to provide a chief restructuring officer and wind-down services, GlassRatner Advisory & Capital Group LLC as financial advisor, and Kurtzman Carson Consultants LLC (doing business as Verita Global) as claims and noticing agent. David M. Klauder was appointed as the Subchapter V Trustee on June 20, 2024.

Subchapter V Eligibility Contest

QLess filed its petition two days before the temporary $7.5 million Subchapter V debt limit expired on June 21, 2024. The elevated threshold, first enacted under the CARES Act in 2020 and extended by the Bankruptcy Threshold Adjustment and Technical Corrections Act in 2022, reverted to $3,024,725 on June 22. Had QLess filed after the expiration, it would not have qualified for Subchapter V.

On August 21, 2024, Bäcker and certain preferred shareholders objected to the debtor's Subchapter V eligibility, arguing that total liabilities listed on the petition's balance sheet reached $13,504,290.20 — well above the $7.5 million statutory cap under § 1182. The objectors contended that the debtor's calculation excluded debts that should count toward the limit and that the timing of the filing was itself an issue given the imminent statutory change.

On September 7, 2024, a supplemental objection contested specific debt calculations, arguing that certain prepetition obligations — including IRS claims of $243,000, an SBA claim of $127,237, and various contingent liabilities — should be included in the eligibility calculation. The objectors' analysis placed the debtor's non-insider debt above the $7.5 million cap by approximately $398,000.

Celtic Bank Corporation filed a statement supporting the debtor's eligibility and plan confirmation, noting its interest as the senior secured creditor.

Judge Shannon heard the eligibility challenge at the September 13, 2024 hearing and issued a bench ruling on September 16, 2024, overruling all objections to both eligibility and plan confirmation. The court found that the debtor satisfied the requirements for Subchapter V relief and that the plan met the standards for confirmation under § 1191(b).

Plan Confirmation and Cramdown

QLess filed its initial plan of reorganization on July 19, 2024 — 30 days after the petition — and an amended plan on August 21, 2024. The plan was structured with a dual-track treatment mechanism for general unsecured creditors that varied depending on whether Class 4 voted to accept or reject.

Voting results. Classes 1 (Celtic Bank secured claim), 2 (DIP loan claim), and 5 (equity interests) voted to accept the plan. Class 3 (priority claims) was unimpaired and deemed to accept. Class 4 (general unsecured claims) voted to reject, triggering non-consensual confirmation under Bankruptcy Code § 1191(b). Class 6 (warrants) was a conditional class.

Class treatment under cramdown:

Class 1 — Celtic Bank Secured Claim (~$6.5M)	Prepetition nonmonetary breaches waived; Celtic Bank's liens and loan obligations continued unmodified except for amended nonmonetary covenants
Class 2 — DIP Loan Claim (~$3.3M)	Converted to New Preferred Shares constituting ~22% of reorganized capital stock (fully diluted); plus $750,000 allowed administrative expense claim at 15% interest (4.5% cash pay monthly, 10.5% added to principal), due three years after Effective Date
Class 3 — Priority Claims	Paid in full in cash (debtor estimated none existed)
Class 4 — General Unsecured Claims	Pro rata share of $75,000 in projected disposable income over three years (~10.2% estimated recovery)
Class 5 — Equity Interests	Existing shareholders retained interests, diluted by New Preferred Shares and Management Incentive Plan
Class 6 — Warrants	Canceled with no recovery; warrants also rejected as executory contracts

Dual-track mechanism. Had Class 4 voted to accept the plan, unsecured creditors would have received a pro rata share of a $300,000 GUC Fund — an estimated recovery of approximately 61.5% — and the Palisades claim against the debtor would have been waived. Because Class 4 rejected the plan, the cramdown track applied: the Palisades claim remained unwaived, and unsecured creditors received only three years of the debtor's projected disposable income.

DIP-to-equity conversion. The $3.3 million DIP loan claim was converted to equity rather than repaid in cash. The DIP lenders (Palisades and affiliates) received New Preferred Shares constituting approximately 22% of the reorganized debtor's fully diluted capital stock, plus a $750,000 administrative expense claim accruing at 15% annually.

Exculpation and injunction. The Confirmation Order approved exculpation for parties acting between the Petition Date and Effective Date, excluding acts constituting crime, actual fraud, willful misconduct, or gross negligence. An injunction provision was also approved with amendments limiting its scope. The 14-day stay under Bankruptcy Rule 3020(e) was waived, making the order immediately effective.

The plan's Effective Date occurred on September 18, 2024 — one day after confirmation — and distributions commenced that same day.

Post-Confirmation and Case Closure

Following the Effective Date, the reorganized debtor executed the plan and moved toward final administration.

Professional fee applications. An omnibus order on October 15, 2024 approved final fee applications for Pachulski Stang Ziehl & Jones LLP (bankruptcy counsel), Kurtzman Carson Consultants / Verita Global (claims agent), and Subchapter V Trustee David M. Klauder. GlassRatner Advisory & Capital Group LLC's final fee application was separately approved on November 8, 2024. Sherwood Partners filed its final staffing report, and all ordinary course professionals submitted disinterestedness declarations.

Claims resolution. All claims were either allowed, disallowed, or withdrawn. On February 12, 2025, Bäcker, Ricardo Backer, and Cerocaru Investment Trust withdrew their proofs of claim, effectively resolving the outstanding shareholder-related claims. The Subchapter V Trustee's final report confirmed no funds were collected and no distributions were made by the trustee — the reorganized debtor handled all plan distributions directly.

Contract rejections. On September 20, 2024, the debtor filed a notice of rejection of certain contracts and leases. Providence Partners, LLC initially filed a motion to compel rent payment under § 365(d) but withdrew the motion on September 30, 2024.

Final decree. On February 27, 2025, the reorganized debtor filed a Motion for Final Decree certifying that the plan was substantially consummated, the estate was fully administered, all distributions had been completed, all claims had been allowed or disallowed, all bar dates had passed, all professional fees had been approved, and no contested matters remained pending. The Final Decree was entered on March 14, 2025, closing the case approximately nine months after the petition date.

Frequently Asked Questions

What caused QLess to file for bankruptcy?

QLess filed chapter 11 under Subchapter V while defending a shareholder lawsuit filed in December 2023 by founder Alex Bäcker and former shareholders. The company said the litigation had cost about $1 million in six months, with projected costs reaching $8 million. It also reported negative EBITDA from dual-platform development costs and projected an operating loss of about $5 million for 2024.

What does QLess do?

QLess is a SaaS company that provides virtual queue management and appointment scheduling software. The platform allows customers to join a queue remotely via smartphone or web, receive text notifications, and arrive for service without waiting in a physical line. The company serves higher education institutions, government agencies, healthcare providers, and retailers across six continents.

What is Subchapter V bankruptcy?

Subchapter V is a streamlined version of chapter 11 designed for small business debtors with aggregate debts below a statutory threshold. It allows faster plan confirmation, does not require a disclosure statement, and permits the debtor to confirm a plan even over creditor objections under certain conditions. QLess filed under Subchapter V just two days before the temporary $7.5 million debt limit expired.

What happened to unsecured creditors?

General unsecured creditors voted to reject the plan, triggering cramdown confirmation under § 1191(b). Under the cramdown track, unsecured creditors received a pro rata share of $75,000 in projected disposable income over three years — an estimated recovery of approximately 10.2%. Had they voted to accept, they would have received a share of a $300,000 fund with an estimated 61.5% recovery.

Who provided DIP financing?

Palisades Growth Capital Fund II, L.P. — the debtor's largest shareholder with approximately 35% ownership — provided a $3.5 million DIP facility at 15% interest. Upon plan confirmation, the $3.3 million DIP loan claim converted to New Preferred Shares representing approximately 22% of the reorganized debtor's fully diluted capital stock.

What was the shareholder dispute about?

The dispute involved founder Alex Bäcker, who was removed as CEO in 2019 and whose attempted board takeover was invalidated by the Delaware Court of Chancery and affirmed by the Delaware Supreme Court. Following a 2021 merger/recapitalization led by Palisades, Bäcker and former shareholders filed a lawsuit alleging breaches of fiduciary duties and violations of the corporate charter. Bäcker also pursued approximately $1.56 million in arbitration claims for unpaid compensation.

Did QLess continue operating after bankruptcy?

Yes. The confirmed plan left existing equity interests in place, subject to dilution from the DIP-to-equity conversion and the management incentive plan. The case later closed by final decree on March 14, 2025.

How long did the bankruptcy case take?

The case moved from petition to plan confirmation in approximately 90 days (June 19 to September 17, 2024) and from petition to final decree in approximately nine months (June 19, 2024 to March 14, 2025). All distributions were completed, all claims resolved, and all professional fees approved before the case closed.

What happened to the Celtic Bank secured debt?

Celtic Bank Corporation held approximately $6.5 million in secured debt with a first-priority lien on substantially all of the debtor's assets. Under the plan, Celtic Bank's liens and loan obligations continued unmodified, with the exception of certain nonmonetary covenant amendments. The DIP facility was expressly junior and subordinate to Celtic Bank's position.

Who is the claims agent for QLess?

Kurtzman Carson Consultants LLC, doing business as Verita Global, 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 more coverage of chapter 11 cases, visit the ElevenFlo blog.