QLess, Inc. Commences Chapter 11 Bankruptcy Proceedings

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 costly shareholder litigation and mounting legal expenses that threatened to overwhelm the company's improving operational metrics. In a testament to Subchapter V's streamlined procedures, QLess confirmed its reorganization plan on September 16, 2024, and emerged from bankruptcy just two days later—completing a restructuring in approximately three months that would have taken far longer under traditional Chapter 11.

Company Background and Market Position

QLess was founded in 2007 in Pasadena, California, by entrepreneur Alejandro (Alex) Bäcker with a straightforward mission: eliminate 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 liberated customers from driving to a location merely to obtain a paper ticket and sit in a waiting room.

The company found early success 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, demonstrating consistent platform adoption across its customer base.

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 positioned itself as a pioneer in cloud-based queue management within a rapidly growing 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—though competition in the virtual queuing space intensified as larger software providers entered the market.

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. The deal represented a significant milestone for the growth equity firm. 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 actually begun earlier. In 2019, founder Alex Backer was removed as CEO and board member following substantiated employee complaints. James Harvey, a software industry veteran 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.

Improving Operational Metrics

Despite years of negative EBITDA, key performance indicators improved significantly under new management. Annualized Recurring Revenue reached a historic 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%. These trends suggested the underlying business remained viable despite its capital structure challenges.

Capital Structure and Prepetition Debt

QLess entered bankruptcy with a relatively modest debt load for a venture-backed SaaS company. The prepetition capital structure consisted primarily of 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, but this trajectory required resolution of the litigation overhang consuming cash resources.

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

The Shareholder Lawsuit

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 and defended vigorously. However, the litigation proved extraordinarily expensive. 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.

Arbitration and Dual-Platform Costs

Compounding the litigation burden, 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 maintained all claims were frivolous and subject to affirmative defenses.

Simultaneously, the company bore substantial R&D costs supporting two software platforms: the aging Linebuster and the newer Tempo solution. This "bubble cost" of platform transition—including AWS hosting expenses for dual systems—prevented improving revenue from translating into profitability. The company implemented expense reduction measures on April 1, 2024, achieving approximately $2 million in annualized savings primarily through headcount reduction, but these cuts proved insufficient to offset litigation expenses.

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 significant 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.

DIP Financing Terms

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, confirming the limited market appetite for subordinated restructuring loans to a litigation-encumbered SaaS company.

To address potential conflicts inherent 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, led arm's-length negotiations on 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, effectively recapitalizing the company while eliminating the shareholder litigation overhang.

Successful Emergence and Case Outcome

QLess achieved one of Subchapter V's intended outcomes: rapid restructuring with minimal disruption. The court confirmed the reorganization plan on September 16, 2024, and QLess emerged from bankruptcy on September 18, 2024—approximately 91 days after filing. This timeline aligned with Subchapter V's design for efficient small business reorganizations.

Contested Confirmation and Cramdown

The path to confirmation proved more contentious than the timeline suggests. Alex Bäcker and certain preferred shareholders filed objections challenging both QLess's Subchapter V eligibility and the proposed plan terms, forcing a trial-style confirmation hearing before Judge Brendan Linehan Shannon. The voting results illustrated the depth of the founder dispute:

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.

Plan Economics and Post-Emergence Structure

The restructuring achieved its primary objectives. QLess discharged claims arising from the shareholder litigation, converted DIP financing to equity, and emerged with a strengthened balance sheet positioned for continued platform development. 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. With litigation resolved and debt restructured, management could refocus resources on the Tempo platform transition and market expansion.

Case Administration and Closure

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, certifying substantial consummation of the plan. The court entered a Final Decree closing the case on March 14, 2025—approximately nine months from petition to administrative closure, representing a complete lifecycle for a Subchapter V reorganization.

Strategic Implications for Technology Companies

The QLess bankruptcy illustrates several dynamics affecting growth-stage technology companies navigating distress situations.

First, founder disputes and governance conflicts can impose existential costs on companies that lack the financial cushion to absorb prolonged litigation. The $1 million already spent and $8 million projected for shareholder lawsuit defense exceeded QLess's entire unsecured debt—a stark illustration of how legal conflicts can overwhelm otherwise viable operations.

Second, Subchapter V's streamlined procedures proved well-suited to a SaaS company requiring operational continuity. Unlike traditional Chapter 11, which might have required months of creditor negotiations and potentially a creditors' committee, Subchapter V enabled QLess to confirm a plan in under 100 days while maintaining customer relationships and employee retention.

Third, the §1191(b) cramdown confirmation demonstrates Subchapter V's utility when founder-affiliated claims threaten to derail reorganization. The Bäcker parties' disputed claims—if counted—would have represented nearly 90% of Class 4 by dollar amount, effectively giving a disgruntled founder veto power over the plan. The cramdown mechanism allowed confirmation despite this rejection, though at significant cost to other unsecured creditors who received ~10% rather than ~62% recovery. For companies anticipating contested confirmations, structuring plan alternatives that satisfy §1191(b)'s projected disposable income requirements provides a viable path forward.

Fourth, the case demonstrates how private equity sponsors can support portfolio companies through restructuring via DIP financing that converts to equity. With PE-backed bankruptcies reaching record levels in 2024, the Palisades-led financing represents a constructive alternative—ensuring QLess avoided value-destructive liquidation scenarios while positioning existing shareholders to benefit from post-emergence performance. The 2024 bankruptcy environment saw elevated restructuring activity across technology sectors, with many companies facing similar capital structure challenges.

For technology companies facing similar challenges, QLess's trajectory suggests that early engagement with restructuring counsel, proactive use of Subchapter V where eligible, and alignment with existing stakeholders on DIP financing can facilitate rapid resolution. Legal scholars have examined both advantages and disadvantages of the SBRA framework, but the approximately 91-day timeline from filing to emergence—and nine months to case closure—represents a model outcome for founder-dispute-driven restructurings.

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