When a toilet paper executive dreamed big, his ambitions ended up sinking his company. Now Jeff Schoen, the former president and CEO of Orchids Paper Products, might be held liable for tens of millions of dollars worth of debt his company racked up during his disastrous expansion effort. 

A judge overseeing the bankruptcy of Orchids Paper Products ruled earlier this week that a trustee on behalf of creditors can move forward with a lawsuit against Schoen and other former directors and officers of the company. Although the ruling is preliminary and doesn’t specify whether Schoen and other directors and officers owe the money, it puts the case on a path toward a trial.

“Looking at the conduct alleged by the amended complaint, the court concludes that the liquidating trustee has adequately stated a claim that the defendants breached their duty of good faith,” Delaware Bankruptcy Judge Mary Walrath wrote, adding that the complaint “contains numerous allegations” of the defendants “demonstrating a conscious disregard for their duties.” 

It’s not every day that a chief executive officer ends up held personally responsible for ostensibly well-intentioned business decisions that went horribly awry. But in Schoen’s situation, the plan was apparently so foolhardy and the consequences so dire that he may not get a pass. In its complaint, the trustee Buchwald Capital Advisors described the company’s path to insolvency as “reckless and grossly negligent,” costing Orchids millions of dollars in lost assets, lost revenue, lost opportunities and additional debt.

Orchids was an Oklahoma-based regional manufacturer of “value and extreme value” toilet paper, sold by retailers such as Dollar General and Family Dollar. As described by Buchwald Capital, Schoen and his team started to plot a big shift for the company starting around 2014, and began angling to turn it into a “national manufacturer of premium and ultra-premium issue products.” The plan included a “bi-coastal expansion,” with the construction of a new plant in Barnwell, South Carolina and the acquisition of a stake in a Mexicali, Mexico plant.

The plucky paper company also spent millions of dollars on a “high-end, untested paper machine,” the Advantage QRT from Finnish paper technology firm Valmet Oyj. The machine was advertised as being able to make products “with high absorption, bulk and softness” while providing “a sustainable process and low energy consumption,” according to Valmet's website. But as often the case with brand-new technologies, it ended up costing well-above an initial asking price, broke down a lot, and was expensive to maintain, Buchwald Capital said.

Meanwhile, managing the Mexicali plant was “fraught with complications” because of a business conflict, according to the complaint. A last-ditch capital-rising effort in 2017 and 2018, dubbed “Project Odyssey,” also went poorly and ended up costing the company $10 million in professional fees. Orchids finally filed for bankruptcy in April 2019, listing debts of $271 million. Most of its assets were sold at auction to Ontario-based Cascades for $207 million in July 2019.

Lawyers for Schoen did not reply to a request for comment from us. If the trustee eventually prevails at a trial, Schoen and more than a half-dozen former directors and officers could be held jointly and severally liable for “tens of millions of dollars in unpaid claims against the debtor’s bankruptcy estate,” according to the complaint. That’s some pretty expensive toilet paper.

Ad placeholder