Sundown Audio Maker Systematic Audio Files Chapter 11

Systematic Audio, LLC, the Tennessee company that designs and manufactures high-performance car audio gear under the well-known Sundown 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, did not arrive because the business was failing. By the debtor's own account, it filed to buy "breathing space" from a three-week collision of events that put an otherwise profitable manufacturer at the mercy of two secured lenders and a $21 million-plus jury verdict.

In its Statement in Support of the Chapter 11 Case, Systematic Audio describes a company that, in roughly three years since acquiring the Sundown Audio operating assets, turned a business with negative $2 million of EBITDA into one generating nearly $4 million of positive EBITDA. The debtor reported approximately $18 million in fiscal 2025 revenue and about $3.4 million in EBITDA. The problem was not operations. It was a wall of liabilities that nearly doubled overnight when a North Carolina jury came back.

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The business

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. (court filing)

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.

Why the company filed

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. (court filing)

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.

Capital structure

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 originally sized at $7.5 million, with roughly $6.3 million outstanding, 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. (court filing)

Liquidity was thin at filing. The debtor held only about $55,000 of available cash, substantially all of it KeyBank's cash collateral.

Cash collateral and first-day relief

With virtually no unencumbered cash, the debtor's most pressing need was authority to keep spending. 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 a slate of 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. A final hearing on those matters is set for July 10, 2026.

A contested case

This is not a quiet, consensual filing. The litigation plaintiffs have brought the fight into 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.

Several flashpoints converge on July 10, 2026, when the court is scheduled to take up the stay-relief and trustee requests alongside the final first-day matters. A meeting of creditors is set for July 8, and the debtor has until July 24 to file its schedules and statement of financial affairs. (court filing)