Employee Force Provider - Chapter 11 Case Summary

Business Description

Employee Force Provider, Inc. (the "Debtor"), a California corporation headquartered in Ontario, California, operates a labor-staffing business. The Debtor filed a voluntary petition under Chapter 11, Subchapter V, on Aug. 3, 2026 (the "Petition Date") in the U.S. Bankruptcy Court for the Central District of California, Riverside Division, before the Hon. Scott H. Yun (Case No. 6:26-bk-16318-SY).

• The Debtor employs between approximately 700 and 761 employees (the "Employees") and deploys them to client sites on a weekly basis.
• The Employees are integral to the Debtor's continued operations, the generation of revenue, and the preservation of estate value. According to the Debtor, it cannot continue to operate and reorganize without its Employees.

As of the Petition Date, the Debtor has annualized revenue of approximately $22 million and projects growth to its revenue in the near and long-term. Revenue is generated in approximately equal parts from direct collections and financing under an Accounts Receivable Purchasing Agreement (the "ARPA") with nFusion Capital Finance, LLC ("nFusion").

Jairo Santiago Mendoza has served as President of the Debtor since approximately 2021.

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Corporate History

The Debtor was formed in 2019, and 100% of its shares are owned by Walter Ramirez. Mendoza began working at the Debtor in or about 2020, after Ramirez, who had limited staffing experience, reached out to him.

• The Debtor's business grew rapidly, and by the end of 2023 it had annualized revenue of approximately $65 million.
• BMO Bank has been the Debtor's bank since the company started.

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Operations Overview

The Debtor states that it requires uninterrupted utility services at each of its four operating locations, including water, natural gas, electricity, waste-removal and related services (collectively, the "Utility Services"). The Utility Services are provided by several utility companies and other service providers (each, a "Utility Provider," and collectively, the "Utility Providers"), identified without limitation on a Utility Provider List attached to the declaration as Exhibit 1. The Debtor states it has made an extensive, good-faith effort to identify all Utility Providers and requests authority to supplement the list and serve notice on any provider that was omitted.

• Historically, the Debtor incurs approximately $3,859 per month for Utility Services.
• A disruption of the Utility Services would impair the Debtor's ability to operate, preserve going-concern value, serve customers, maintain inventory and facilities, and maximize value for the estate and creditors. The Debtor accordingly seeks approval of its proposed adequate assurance of payment for future utility services, an order prohibiting Utility Providers from altering, refusing, or discontinuing service, and approval of proposed Adequate Assurance Procedures that the Debtor's President believes are fair and will be effective in maintaining the Utility Services while providing adequate assurance of payment during the case.

Workforce and Payroll

The Debtor pays its Employees on a weekly payroll schedule to manage cash flow and processes its payroll in-house. Payroll is funded on the Wednesday before payroll checks are issued on each Thursday/Friday pay day.

• The Debtor provides its full-time Employees with benefits, including paid time off, holidays, medical, dental, and vision benefits, and some contribute to the CalSavers retirement plan (collectively, the "Benefits").
• The Debtor's next payroll is due on Aug. 6/7, 2026, and will include a prepetition stub period from July 27, 2026 through Aug. 2, 2026. The source of the funds to be used to pay the Prepetition Payroll will be the Debtor's available cash and revenue.

Cash Management and Collection Cycle

The Debtor currently maintains two bank accounts at BMO Bank N.A.: a payroll account ending x9815 (the "Payroll Account") and an operating account ending x8454 (the "Operating Account," and together with the Payroll Account, the "Prepetition Bank Accounts"), which it uses to pay payroll obligations to its Employees and to make payments to landlords, vendors, utility companies, and other entities providing goods and services to the Debtor. The Cash Management Motion seeks authority to continue using the Prepetition Bank Accounts for up to 30 days after the Petition Date and to continue utilizing the Debtor's credit card processing systems in order to avoid interruption to its business. The Debtor's cash-flow cycle depends on continued access to the Prepetition Bank Accounts during the transition period. In the ordinary course, funds are deposited, transferred, and disbursed as follows:

• The Debtor deploys its employees to a client for one week, prepares an invoice for the prior week's labor and delivers it by approximately Wednesday of the following week, and delivers payroll checks to its employees by Friday of the same week.
• Approximately half of the Debtor's clients pay the Debtor directly, on net terms ranging from seven to 14 days. Some clients pay by check and others send wires, in each case deposited into the Payroll Account.
• nFusion purchases the other half of the invoices and funds 100% of the invoice amount, with 90% paid to the Debtor and deposited into the Payroll Account and 10% deposited into an Escrow Reserve Account held by nFusion.
  • Clients who pay invoices to nFusion on the net terms negotiated with the Debtor generally do so approximately 14 to 30 days from the date of invoice. For each day an invoice is unpaid from the time purchased by nFusion, the invoice incurs a 0.065% discount.
  • When nFusion receives payment from a client on a purchased invoice, it retains the 90% previously advanced plus the accumulated daily discount and credits the remaining balance to a cash reserve account it maintains (the "Cash Reserve Account"). If payment on the invoice is short of what is due or the accrued daily fee exceeds the amount collected, nFusion will recover the shortfall from the Cash Reserve Account.
  • By way of illustration, on a $10,000 invoice, nFusion advances $9,000 to the Debtor by deposit into the Payroll Account and the invoice incurs a daily discount of $6.50 until paid.
  • As of the Petition Date, the Cash Reserve Account balance is $19,713.99. The Debtor may request distributions from the Cash Reserve Account on a daily basis or as otherwise needed, which are deposited into the Payroll Account upon request. All funds remitted to the Debtor by nFusion are deposited into the Payroll Account.
• The Debtor transfers funds from the Payroll Account to the Operating Account as needed. From the Operating Account, the Debtor pays expenses other than employee payroll, including utilities, rent, sales commissions, expense reimbursements, and other operating costs.

The Debtor maintains a good relationship with nFusion and relies upon the ARPA to fund ongoing operations.

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Prepetition Obligations

nFusion ARPA

• In June 2024, the Debtor began to finance operations through a factoring relationship with nFusion under the ARPA, by which nFusion purchased approximately half of the Debtor's receivables as they were generated, funded them, and collected daily payments from the Debtor until the given receivable collected.
  • The ARPA grants nFusion a security interest in all of the Debtor's assets as security for the collection of the amounts owed to nFusion on the purchased invoices. nFusion holds a perfected first priority lien in substantially all of the Debtor's assets, including the cash proceeds of accounts (the "Cash Collateral").
  • nFusion is due to collect $1,238,399.50 on invoices purchased prepetition. Once nFusion collects on the amounts owed on these invoices, it is to release whatever balance remains in the prepetition Cash Reserve Account and Escrow Reserve Account to the Debtor.

MCA Obligations

• The Debtor responded to a solicitation for a short-term loan from Diverse Capital LLC, a merchant cash advance lender, or "MCA," and entered into a "Sale of Future Receipts Agreement" (the "First Diverse Agreement") by which Diverse loaned the Debtor the funds needed to meet operating needs. The First Diverse Agreement listed what appeared to be an interest rate of 20%, which was high, but the Debtor anticipated it would be able to pay off the facility.
• In October 2024, Diverse offered the Debtor a second "Sale of Future Receipts Agreement" (the "Second Diverse Agreement," together with the First Diverse Agreement, the "Diverse Agreements") that operated alongside the First Diverse Agreement.
  • From 2024 through the Petition Date, Diverse "re-upped" the Diverse Agreements no less than seven times each, every time funding more money and charging origination fees. Through these regular renewals with new advances and new fees, the balance owed to Diverse was regularly renewed to between $6.5 million and $7.5 million.
  • Over the course of a little over two years, the Debtor received approximately $13 million from Diverse and has paid approximately $26.3 million, and Diverse still claims to be owed approximately $5.2 million, or approximately $7 million including the default fee of $1.8 million.
  • Depending upon how it is calculated, the Debtor's President believes the effective APR paid for the funds advanced by Diverse is in excess of 200% and as high as 230%.
• In March 2026, the Debtor took a smaller loan of $630,000 from another MCA lender, Alpha Funding Source, LLC ("Alpha," and together with Diverse, the "MCA Lenders").

Employee Obligations

• By the Wage Motion, the Debtor seeks an order authorizing, but not directing, it to pay all non-insider Employees the prepetition wages, salaries, commissions, and bonuses owed to hourly and salaried Employees and to honor vacation benefits. The total estimated Prepetition Payroll and Benefits for the prepetition stub period total approximately (i) $604,305 in wages, salaries, commissions, and bonuses for hourly and salaried Employees, which amount includes amounts owed to insiders, and (ii) $6,100 in reimbursements for business expenses owed to Employees. The amounts are within the limits of Bankruptcy Code section 507(a)(4).
• All of the Employees for whom the Debtor seeks authority to pay Prepetition Payroll and honor Benefits remain employed by the Debtor. The Debtor submits that payment — including all applicable federal and state withholding taxes, payroll taxes, employee CalSavers contributions, employee benefits, and payroll service fees — will not render the estate administratively insolvent, and that the same conclusion follows from the operating budget submitted with its cash collateral motion. The Employees and the amounts they are owed are summarized in Exhibit 2 to the declaration, with names redacted for privacy and an unredacted version to be provided to the U.S. Trustee upon request.
• The Debtor also seeks authority to honor approximately $78,907 in accrued vacation benefits as Employees take their vacation days in the ordinary course of business; the Debtor does not intend to pay out its existing vacation benefits to Employees in cash at this time.

Tax Obligations

• On account of the payments made on the debt owed to the MCA Lenders, the Debtor has fallen behind on tax payments due to the IRS and the California EDD.

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Events Leading to Bankruptcy

Liquidity Crunch and Recourse to MCA Financing

Following the Debtor's rapid growth through the end of 2023, a confluence of factors led to liquidity issues. One of the Debtor's largest clients shut down owing a receivable of approximately $1.5 million, and that outstanding receivable was the initial cause of the resulting cash shortfall.

• The cash generated from the First Diverse Agreement did not boost the Debtor through its liquidity crunch, and Diverse was quick to offer to make further advances to the Debtor through restatements of the First Diverse Agreement.
• Around the same time, in June 2024, the Debtor turned to the nFusion ARPA to finance operations.

Business Contraction and MCA Enforcement

In 2025, the Debtor's business contracted significantly as clients pulled back or suspended operations on account of the uncertainty caused by U.S. trade and tariff policy and the stress on the workforce caused by immigration enforcement.

• The weight of the MCA Lender payments became too great to maintain, and the Debtor suspended MCA Lender payments in May 2026.
• The MCA Lenders moved quickly to commence actions against the Debtor in New York and obtain judgments.

Chapter 11 Filing and Go-Forward Strategy

The Debtor filed this case under Chapter 11, Subchapter V, in the U.S. Bankruptcy Court for the Central District of California, Riverside Division, to restructure its tax liabilities and other debts and to address the MCA claims. The Debtor has requested various types of relief in the First Day Motions filed concurrently with the declaration in order to minimize the adverse effects of the commencement of the case, minimize disruption, maximize its restructuring opportunity, and maximize the value of the estate for the benefit of creditors and parties in interest.

• The Debtor also seeks authority to limit notice of the Limited Notice Matters in this case to a limited number of parties. There are over 5,000 parties on the mailing matrix, and the Debtor does not have fax numbers or email addresses for many of them; serving each by telephone, messenger, or personal delivery would be costly and time prohibitive for a small business with limited resources. The Debtor states that granting the relief would dramatically reduce the burden, complication, delay, and cost of administering the case.
• To continue operations post-petition, prevent disruptions to its business operations and preserve the going concern value of its business, the Debtor requires working capital to pay its Employees and its other operating expenses, and requires the immediate and regular funding provided by the nFusion ARPA to meet those expenses. The DIP Motion accordingly seeks adoption of the nFusion ARPA as a DIP financing facility under Bankruptcy Code section 364, together with authority to use cash collateral under section 363, approval of adequate protection, and the setting of a final hearing. The Debtor filed the motion concurrently and intends to use cash collateral to pay, among other things, the Prepetition Payroll.
  • The ARPA has been the backbone of the Debtor's working capital for two years, and nFusion has been a steady partner in this regard.
  • The Debtor's effective cost of financing on factored invoices is 23.75%. While this cost of capital is expensive, in the President's business judgment the terms of the ARPA are fair.
  • The Debtor states that, having looked for alternative sources of working capital financing over the past two years, it is unable to obtain sufficient financing on more favorable terms from sources other than nFusion under the DIP ARPA, is unable to obtain adequate unsecured credit allowable under section 503(b)(1) as an administrative expense, and is unable to obtain secured credit allowable under sections 364(c)(1), 364(c)(2), and 364(c)(3) without accepting nFusion's conditions, which the Debtor believes are reasonable, necessary, and substantially justified under all the circumstances of the case.
  • A 13-week operating cash budget was prepared at the President's direction and is attached to the declaration as Exhibit 3; the President believes it is a fair projection of income and expenses over the next 13 weeks. No extraordinary expenses are included in the budget, and based upon it, the Debtor believes the DIP facility will provide sufficient funds to maintain operations, reorganize and exit from the case.
• The Debtor expects to close all of the Prepetition Bank Accounts by no later than 30 days after the Petition Date. To replace them, the Debtor intends to open at least three debtor-in-possession accounts at BMO: a DIP checking account, a DIP payroll account, and a DIP tax account.
  • Once the DIP Accounts are opened and the Debtor has successfully transitioned all payment processing services to them, the Debtor will close the Prepetition Bank Accounts and operate exclusively from the DIP Accounts.
• The Debtor believes that a substantial number, if not all, of its Employees will quit if they are not paid their wages, salaries, commissions, bonuses, and benefits in full and in a timely fashion. Without the Employees, the Debtor's operations and the value of its business would be eviscerated altogether and the preservation of estate value would be materially impaired, if not wiped out.
• The Debtor seeks a 14-day extension of time to file its Schedules, Statement of Financial Affairs, and Disclosure of Compensation of Attorney for Debtor, citing the large amount of information required during the initial stages of the case alongside its ongoing daily operations. Prior to the Petition Date and immediately thereafter, the Debtor worked with its proposed counsel to prepare and file a number of first day motions and to collect and prepare the information for the U.S. Trustee's 7-Day Package. Throughout this time, the Debtor has continued to operate, reassure employees and vendors of the continued operations, and continue to book new business.
  • The Debtor has also been working through the closing of its prepetition books and records and the opening of new debtor-in-possession books and records, and coordinating with its bank with respect to the requirements of the Cash Management Order and the Utilities Order, in addition to continuing to gather the data and information needed to complete its Schedules and SOFA.