Systematic Audio Files Chapter 11 After $21M Verdict

Systematic Audio, LLC, the Tennessee manufacturer behind the Sundown Audio car-audio brand, filed for chapter 11 protection on June 9, 2026, in the U.S. Bankruptcy Court for the Western District of North Carolina. The Statesville Division case, No. 26-50236, followed a jury verdict exceeding $21 million and notices of default from the debtor's secured lenders. Systematic Audio said it filed to obtain "breathing space" while it addressed those events.

In its Statement in Support of the Chapter 11 Case, Systematic Audio reported approximately $18 million in fiscal 2025 revenue and about $3.4 million in EBITDA, after acquiring the Sundown Audio operating assets in 2022. The company said that in the roughly three years since the acquisition, it turned the business from an approximately $2 million annual EBITDA loss into approximately $4 million of positive annual EBITDA before the litigation and lender defaults intervened.

What has changed in Systematic Audio, LLC since this article was published?

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Debtor	Systematic Audio, LLC
Court	U.S. Bankruptcy Court, Western District of North Carolina (Statesville Division)
Case Number	26-50236
Petition Date	June 9, 2026

Sundown Audio brand and Systematic Audio's 2022 acquisition

Sundown Audio was founded in North Carolina in 2006 and has built a following among car-audio enthusiasts and sound-pressure-level competitors. The debtor designs, manufactures, and distributes subwoofers, amplifiers, speakers, midrange drivers, and related accessories, with more than 225 SKUs spanning the Z-Series, LCS, X-Series, Nightshade, NeoPro, and VEX speaker lines, plus the SALT and Team amplifier lines.

Systematic Audio, LLC was formed in Tennessee on November 11, 2022 to acquire those assets. Its sole member is XS Investment Intermediate, LLC, and the debtor in turn owns SVJ Holdings, LLC. Only Systematic Audio filed; none of its affiliates sought protection. The company is run by chief executive officer Scottie Johnson, employs roughly 30 people, and sells through authorized brick-and-mortar dealers, online dealers, and a direct-to-consumer e-commerce platform.

The footprint matters to the case. The debtor designs, builds, assembles, and warehouses most of its product at a 180,000-square-foot, company-owned facility in Newton, North Carolina, in Catawba County. It also runs a leased distribution center in Las Vegas to serve West Coast customers, keeps its corporate office in Knoxville, Tennessee, and is expanding toward Toronto.

Blue Building verdict and lender defaults

The trigger was litigation. In a suit styled Blue Building, LLC v. Sundown Audio, LLC and pending in Catawba County Superior Court (No. 23CVS001091-170) since May 2023, plaintiffs David Soleymani, Joshua Soleymani, Daniel Soleymani, and Krubim 26 International, Inc. — which operates the competing retailer WoofersEtc — pressed claims for tortious interference, fraud, and unfair and deceptive trade practices. After a three-week trial that began on April 27, 2026, a jury awarded compensatory damages of $5,369,297.50 on May 15, 2026, and punitive damages of $16,107,897.50 on May 18, 2026, against defendants including Systematic Audio and Johnson. The aggregate exceeded $21 million.

From there, the debtor's lenders moved quickly. On June 3, 2026, first-lien lender KeyBank National Association — owed roughly $19 million — noticed events of default tied to financial covenants, borrowing-base compliance, and the litigation itself, and restricted distributions. The two sides could not reach a forbearance. On June 4, the litigation plaintiffs submitted a proposed judgment of roughly $21.5 million. On June 9, second-lien lender Medallion Capital, Inc., owed about $6 million, noticed its own defaults and declared default interest due.

The debtor also flagged a state-law trap. Under North Carolina law, entry of a judgment can create a springing lien on real estate the defendant owns in the county where the case is pending — here, Catawba County, the same county as the debtor's primary Newton plant. Filing for bankruptcy invoked the automatic stay before judgment could be entered, preventing an unsecured litigation claimant from becoming a secured creditor against the company's most important asset. As the voluntary petition and supporting papers make clear, the company viewed chapter 11 as the only path to preserve going-concern value.

KeyBank first-lien facility and Medallion subordinated note

The funded debt is concentrated and almost entirely secured. According to the first-day declaration of Ryan L. Strubeck, a managing director at Ankura Consulting Group engaged as the debtor's financial advisor, Systematic Audio and several non-debtor affiliates are joint-and-several borrowers under an August 6, 2025 loan agreement with KeyBank.

That facility includes a term loan with roughly $6.3 million outstanding, originally sized at $7.5 million, maturing in 2030 and amortizing at $125,000 per month, plus a $15 million revolving line of credit with about $12.7 million drawn. The term loan bears interest at adjusted daily SOFR plus 2.75%, the revolver at SOFR plus 2.50%, and KeyBank holds a first-priority lien on substantially all assets, including a mortgage on the Newton property.

Behind KeyBank sits Medallion Capital, holder of a $6 million senior subordinated note dated the same day, carrying a fixed rate of 14% to 15% and a second-priority lien subordinated under an intercreditor agreement. Together, the secured facilities total approximately $25 million. The debtor also estimates about $2.5 million in general unsecured trade and accrued obligations, on top of the disputed litigation claim of at least $21.4 million. Its largest trade creditor is China-based Primary Subwoofer Factory, owed about $1.3 million.

Systematic Audio's filed schedules and statement of financial affairs listed $25,000,000 of secured claims and $60,573.33 of cash and cash equivalents, consistent with the first-day disclosures, while the schedules' total-asset and total-liability summaries remained undetermined.

Cash collateral and first-day relief

With virtually no unencumbered cash, the debtor's most pressing need was authority to keep spending. The debtor held only about $55,000 of available cash, substantially all of it KeyBank's cash collateral. In its motion to use cash collateral, Systematic Audio sought to fund payroll, customs and import duties, freight, and key suppliers under a 13-week budget, and it reported reaching a consensual agreement with KeyBank.

In exchange, KeyBank would receive customary adequate protection: replacement liens on post-petition assets, adequate-protection liens preserving its prepetition priority, a Section 507(b) superpriority claim senior to Medallion, and adequate-protection payments — all subject to a carve-out for statutory fees and professional compensation. The interim terms run through July 11, 2026, with events of default that include any plan failing to pay KeyBank in full and any non-ordinary-course sale without consent.

The court held a first-day hearing on June 17 and entered interim orders on June 22, 2026, including interim authority to use cash collateral, pay prepetition wages, honor the customer warranty program, maintain utilities and bank accounts, and pay certain prepetition taxes and critical vendors.

The court entered a final cash collateral order on July 14, 2026, replacing the interim authority. That order authorizes cash collateral use only under the court-approved budget through October 3, 2026, subject to a rolling five-week 20% variance on operating-receipts and operating-disbursements line items, with authority to use cash collateral terminating at the end of that period absent a further order or KeyBank's written agreement.

Stay relief, trustee motion, and appeal

This is not a quiet, consensual filing. The litigation plaintiffs have pressed their claims in bankruptcy court. On June 12, they moved for relief from the automatic stay to let the state court enter judgment and rule on post-trial motions, including their request for attorneys' fees. Days later, David Soleymani and the WoofersEtc entity filed objections to the first-day motions and a request for appointment of a chapter 11 trustee under Section 1104(a)(1), citing "fraud, dishonesty, incompetence, or gross mismanagement," and objected to Johnson disbursing funds without a trustee's supervision. Their motion recounts the jury's findings that the CEO committed tortious interference, fraud, and an unfair and deceptive trade practice in connection with the original Sundown Audio acquisition.

The debtor, represented by Moore & Van Allen PLLC and DLA Piper LLP (US), with Epiq Corporate Restructuring serving as claims and noticing agent, opposes that relief and reserves all rights as to the underlying verdicts. It says it intends to use chapter 11 to stabilize operations, secure liquidity, and pursue a value-maximizing transaction — whether exit financing, one or more sales, or a plan of reorganization — with the Newton facility likely central to any outcome.

The meeting of creditors was set for July 8, the debtor's schedules and statement of financial affairs were due July 24, and the notice set October 6, 2026 as the general claims bar date.

The court ruled on the stay-relief motion on July 20, 2026. Judge Laura T. Beyer's order on the automatic stay lifted the stay to let the Catawba County Superior Court enter final judgment on the jury verdicts, rule on post-trial motions including any award of attorneys' fees and costs, and permit any appeal of the Blue Building litigation to proceed. The same order kept enforcement against Systematic Audio and estate property stayed, including creation or perfection of the North Carolina springing judgment lien, and it denied the debtor's separate request to extend the stay to protect CEO Scottie Johnson, finding his alleged liability direct and primary rather than derivative of the debtor's.

Systematic Audio filed a notice of appeal of the stay order on July 27, 2026. The docket subsequently reflects a district-court docketing notice and an appellate-record designation; the case record reviewed for this account does not establish a disposition of that appeal.

Aug. 6, 2025	KeyBank term loan, line of credit, and Medallion subordinated note dated
Apr. 27, 2026	Blue Building jury trial begins in Catawba County Superior Court
May 15, 2026	Jury awards $5,369,297.50 in compensatory damages
May 18, 2026	Jury awards $16,107,897.50 in punitive damages
Jun. 3, 2026	KeyBank notices events of default
Jun. 9, 2026	Systematic Audio files chapter 11; Medallion notices events of default
Jun. 17, 2026	First-day hearing
Jun. 22, 2026	Interim first-day orders entered, including interim cash collateral use
Jul. 8, 2026	Meeting of creditors
Jul. 14, 2026	Final cash collateral order entered
Jul. 20, 2026	Order lifting the automatic stay for the Blue Building litigation entered
Jul. 27, 2026	Debtor appeals the stay order
Oct. 6, 2026	General claims bar date

Frequently Asked Questions

What triggered the Systematic Audio bankruptcy filing?

A Catawba County jury awarded more than $21 million in combined compensatory and punitive damages against Systematic Audio and CEO Scottie Johnson in the Blue Building litigation, and first-lien lender KeyBank and second-lien lender Medallion Capital each noticed defaults in the days that followed. The company filed chapter 11 to invoke the automatic stay before the state court could enter judgment.

Who is the claims agent for Systematic Audio?

Epiq Corporate Restructuring, LLC serves as claims, noticing, and ballot agent. The notice of the July 8 meeting of creditors set October 6, 2026 as the general bar date for filing proofs of claim.

Has the automatic stay been lifted for the Blue Building litigation?

Yes. The court granted the litigation plaintiffs relief from the automatic stay to let the Catawba County Superior Court enter final judgment and rule on post-trial motions, while denying the debtor's request to extend the stay to a non-debtor co-defendant. Systematic Audio has appealed that order, and the case record reviewed does not establish a disposition of the appeal.

Other chapter 11 filings driven by large jury verdicts or judgments include CHS Care NY's filing after a $307 million verdict, Glenwood Caverns' filing after a $119.8 million wrongful-death judgment, OneCore Health's $15 million tort judgment and insider recapitalization, and CCA Construction's $1.6 billion Baha Mar judgment.

Ask our AI chat to review the Systematic Audio docket, including the key filings, orders, and deadlines behind this case.

Sources

1. "breathing space" /documents/0e7a7cd4-df5d-49d0-907e-fa1f059adc91/
2. formed in Tennessee on November 11, 2022 /documents/bef915b5-9174-4646-8d7b-c80de9fea7a5/
3. first-day declaration of Ryan L. Strubeck /documents/93fcb57c-c668-4fe0-ad16-895405a06766/
4. filed schedules and statement of financial affairs /documents/c6310edc-7981-463d-a1de-a24d5bd945df/
5. motion to use cash collateral /documents/3b01a533-2d30-45c0-8264-174d52302724/
6. interim orders on June 22, 2026 /documents/bb35f53e-2bdd-47dd-a109-1f0347f5e7fa/
7. final cash collateral order on July 14, 2026 /documents/74c9ae9f-e36e-4d31-ad45-f3e8c9788e1f/
8. objections to the first-day motions and a request for appointment of a chapter 11 trustee /documents/c6ce02a7-7922-4154-a684-88f069e6cb8f/
9. meeting of creditors /documents/03f0f922-325b-400c-9ab9-fca9596fda6f/
10. order on the automatic stay /documents/de3d1228-2ca1-4a90-a0fd-b44f5f16bb4a/
11. filed a notice of appeal of the stay order /documents/23ff8c48-135d-4b1b-8da3-74fac9384d48/