QLess, Inc. Commences Chapter 11 Bankruptcy Proceedings

Introduction

On June 19, 2024, QLess, Inc. (the “Debtor”) officially commenced its Chapter 11 bankruptcy case under Subchapter V in the United States Bankruptcy Court for the District of Delaware. Detailed information about the official filing—including the case number, key dates, and plan confirmation status—can be found on PacerMonitor. QLess is a Pasadena-based SaaS (software-as-a-service) company that aims to reduce wait times and enhance customer interactions for organizations across multiple industries. In its first day declaration, the Debtor stated that it is pursuing this restructuring primarily to address its long-term debt obligations, resolve ongoing shareholder litigation, and facilitate the development and deployment of a new software platform. This blog post offers a comprehensive overview of QLess’s financial background, key events leading to the Chapter 11 filing, and notable first day motions.

Company Background

QLess was originally founded in 2009 by entrepreneur Alejandro (Alex) Bäcker to eliminate physical lines in customer service environments. Its initial software solution, often referred to as Linebuster, let end-users check wait times, join queues remotely, and receive real-time notifications regarding their expected service time. Over the years, QLess expanded beyond higher education and local government, bringing its solutions to theme parks, clinics, and laboratories that manage high-volumes of daily visits. To learn more about QLess’s history and its role in the queue management industry, see the QLess Wikipedia page. Recognizing its growing user base, QLess introduced an upgraded platform called Tempo, which offers more sophisticated queue management, in-depth analytics, virtual meeting tools, and advanced appointment scheduling features. Despite negative EBITDA over recent years, the Debtor reports improved annualized recurring revenue of $9.1 million, reflecting increasing market demand for its services.

Capital Structure and Key Debts

Under its prepetition secured facility, QLess owes Celtic Bank Corporation at least $6.25 million, with Celtic holding a first-priority security interest on substantially all of QLess’s assets. In addition, QLess estimates that it owes approximately $400,000 to various trade creditors. One of the most significant pending matters is a shareholder lawsuit initiated in December 2023, led in part by former founder and shareholder, Alex Bäcker. This litigation challenges the validity of a 2021 recapitalization transaction and alleges fiduciary breaches by current and former board members. Alongside the shareholder suit, QLess is also defending an arbitration claim brought by Mr. Bäcker seeking around $500,000 in allegedly unpaid compensation, plus other amounts for severance and performance-based incentives. For ongoing updates and court filings related to this case, see Inforuptcy.

Events Leading to the Filing

In its restructuring narrative, QLess cites several factors that prompted the Chapter 11 filing. First, the company has historically recorded negative EBITDA, with net operating losses reaching approximately $5 million for calendar year 2024. Second, while revenue metrics have increased under the leadership of CEO James Harvey (who joined in April 2022), the Debtor faces substantial R&D costs to support dual software platforms: the aging Linebuster and the newer, more robust Tempo solution. Third, QLess has expended close to $1 million in legal fees within six months defending the Shareholder Lawsuit, potentially facing up to $8 million in litigation expenses if the case proceeds to final judgment. These strains, combined with an urgent need to restructure and remain competitive in a market with several well-established competitors, ultimately led QLess to seek Chapter 11 protection.

Key Figures from the First Day Declaration

Cash Management and Employee Protections

An integral part of the first day relief involves QLess’s request to maintain existing bank accounts at Celtic Bank, Brex Treasury, and BridgeBank. These accounts are interconnected through a cash management system that is crucial to day-to-day operations, enabling the Debtor to process payables, payroll, and credit card transactions. QLess emphasized that forcing a change in accounts would be burdensome, risking disruption to critical vendor payments and complicating the secured lender’s account control agreement. Meanwhile, as this article from NextMe highlights, there is uncertainty and potential impact on QLess’s existing customer base—though the Debtor remains committed to honoring existing contracts. In a separate motion, QLess sought to pay accrued prepetition wages and continue benefit programs for its 20 employees. These benefits include medical, dental, vision, life and disability insurance, and a 401(k) plan. The Debtor reasons that such relief is vital to maintain employee morale and prevent undue hardship for workers, especially as the company focuses on reorganizing swiftly.

Taxes, Fees, and Other Obligations

QLess also requested permission to pay certain prepetition taxes and fees. These encompass sales and use taxes, property taxes, franchise fees, and related governmental assessments. The Debtor noted that failure to remit such obligations could lead to audits, liens, or other regulatory actions that might derail its restructuring. By continuing regular tax payments, QLess aims to maintain compliance, avoid penalties, and preserve key licenses and permits necessary to operate. Given that many directors and officers could face personal liability if taxes go unpaid, the Debtor underscored the importance of obtaining court authorization for these remittances.

DIP Financing and Path Forward

Finally, QLess submitted a DIP Financing Motion, highlighting its need for immediate liquidity to maintain operations, fund payroll, and satisfy ongoing administrative expenses. The Debtor negotiated a $3.5 million junior secured debtor-in-possession financing facility from certain of its largest shareholders, with $3.0 million immediately subject to a budget approved by the DIP Lenders. Independent director M. Freddie Reiss played a key role in ensuring arm’s-length negotiations. These funds will allow QLess to navigate Chapter 11 without shutting down or selling the business prematurely. QLess has expressed an ambition to emerge from bankruptcy as a stronger, more profitable company, ultimately converting DIP obligations into equity under a forthcoming plan of reorganization. Interested readers may also find WHOS-NEXT.COM’s press release helpful, as it discusses alternative queue management platforms stepping in to support businesses affected by QLess’s filing.

Conclusion

QLess, Inc.’s decision to pursue Chapter 11 under Subchapter V underscores the company’s drive to address mounting litigation costs, optimize its capital structure, and accelerate the deployment of its next-generation SaaS platform. The first day declaration provides significant insight into QLess’s operational history, ongoing strategic challenges, and specific relief sought to maintain employee morale, preserve key banking relationships, and meet tax and fee obligations. By securing essential DIP financing, the Debtor hopes to restructure effectively and maintain customer confidence as it transitions to Tempo, its more advanced queue management solution. With the support of a committed board and a new chief restructuring officer, QLess stands poised to use the bankruptcy process to stabilize its finances and emerge as a competitive force in the customer flow and queue management market.