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KAL Freight Inc., a California-based trucking company, filed for Chapter 11 bankruptcy in Texas late Thursday, citing $325 million in debt obligations. The filing comes as the company struggles to recover from an overexpansion driven by booming demand during the COVID-19 pandemic that has since waned.

Post-Pandemic Overexpansion

KAL Freight’s chief restructuring officer, Bradley D. Sharp, explained in court filings that the company rapidly expanded its operations in early 2020 to capitalize on increased demand for trucking services. KAL diversified into selling and leasing trucks and trailers, tire sales, and truck parts provisioning while significantly increasing its fleet of trucks and trailers.

However, as demand diminished, KAL was left with excess vehicles and several unprofitable business ventures. This overextension resulted in approximately $260 million in debt tied to vehicle financing alone, according to Sharp's first-day declaration.

Legal and Financial Challenges

In addition to its financial burdens, KAL Freight faces litigation over allegations of malfeasance. These claims include improperly titling vehicles moved into Canada, employing questionable accounting practices, and other irregularities tied to its operations.

Sharp noted that mounting debt service obligations and the costs of defending against legal actions further strained the company’s finances, prompting the Chapter 11 filing.

Bankruptcy Proceedings

The case is assigned to U.S. Bankruptcy Judge Christopher M. Lopez, with a first-day hearing scheduled remotely for 2 p.m. Central time on Friday. The company is seeking to restructure its obligations while continuing operations during the bankruptcy process.

KAL Freight is represented in the bankruptcy proceedings by a team from Pachulski Stang Ziehl & Jones LLP, including attorneys Teddy M. Kapur, Steven W. Golden, Benjamin L. Wallen, Richard M. Pachulski, Jeffrey W. Dulberg, and Gregory V. Demo.

Industry Impact

KAL Freight’s filing highlights ongoing challenges in the trucking industry, where companies have struggled with fluctuating demand and rising operational costs post-pandemic. The case underscores the risks of rapid expansion during temporary market booms and the importance of managing debt in a volatile industry.