Solavei has filed for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code. Chapter 11 allows a business to keep operating under the supervision of the court while it restructures its business. The court can allow the company to cancel contracts and can temporarily block creditors from suing the bankrupt company. The company creates a restructuring plan, which must be approved by the court, detailing the changes it will make to achieve profitability and pay its debts.
Solavei launched in Sept. 2012 with a $49/month unlimited talk, text and data plan. Data was throttled after 4GB and there were taxes and fees that added about $10/month to the plan cost, but it was the best deal available at that time for unlimited talk and text and 4GB of data. Solavei's multi-level-marketing business model turned customers in salespersons by paying users $20/month in recurring commissions for every three customers they signed up, with additional commissions when your referrals signed up customers of their own. Solavei got of to a great start with lots of buzz and enthusiastic members promoting the service to friends, family and on social media.
Things started to go south in November of last year when the amount of data included with the $49 plan was cut from 4GB to 2GB. Solavei added several new plans including one with 4GB of data priced at $69. With these changes, Solavei was no longer the least expensive operator at any price point and that undoubtedly cost them some customers. Less than two months later, commissions were cut to a flat $5 per referral, drastically reducing earnings for members with large sales networks.
Solavei has issued a press release saying it will continue normal operations while in Chapter 11, with no further changes to plans or commissions while it restructures. Solavei says it expects to emerge from bankruptcy by the end of this year.
Chapter 11 is designed to help companies return to profitability. Many well known firms have entered and emerged from Chapter 11 including General Motors, Texaco and United Airlines. Others like Circuit City and Borders Books never emerged and ultimately failed. Overall only about 35% of all companies filing for Chapter 11 successfully emerge. Solavei's chances doesn't look particularly good. Statistically, relatively small companies like Solavei are less likely to emerge form Chap 11. Solavei has $63 million in outstanding debt which is quite a bit for a company that generated just $96 million in revenue over its entire lifetime. Any reorganization plan the court approves will likely require Solavei to spend no more than it earns and that could make it hard for Solavei to keep its promise of no price increases or commission rate decreases.
For more about Solavei's bankruptcy filing and see these FierceWireless and BehindMLM articles and this HowardForums thread.