by Court approves 3rd amended plan
Capping a busy month for bankruptcy proceedings, a Texas court confirmed Conn’s third amended plan to initiate the company’s final wind-down and liquidation. The confirmation came on July 21, almost exactly one year after since filing for Chapter 11 bankruptcy protection on July 23, 2024.
Last month, a Delaware court confirmed Franchise Group’s ninth amended plan to close out that complex bankruptcy.
The Conn’s confirmation ends 135 years for the business, a timeline that saw the company grow to as many as 553 stores. All have closed. Founding as a small heating and plumbing company, the company began selling appliances out of its Beaumont store in 1937. At the time of the bankruptcy filing, the Woodlands, Texas-based chain employed 3,800 people in 15 states.
“I’m here with some melancholy because our goal in filing this case was to try to save the enterprise, and we were not able to do that,” said Duston McFaul, an attorney with Sidley Austin for the debtors, at the hearing.
Also ended is 121 years for Badcock Home. Henry Stanhope Badcock founded the company in Polk County, Florida, in 1904, with a single store in Mulberry. The Badcock family sold the chain to Franchise Group for $580 million in November 2021. Two years later, FRG unloaded Badcock to Conn’s for a million in stock just seven months before the Conn’s bankruptcy.
“There were unique challenges and not the best circumstances,” said Theodore Heckel, an attorney with Pachulski Stang Ziehl & Jones, representing the creditors committee. “But, you know, we negotiated a plan, hoping to make lemonade out of lemons. And I think we got there.”
The wind-down will focus on monetizing any remaining assets and interests, with proceeds going to creditors. Unsecured claims total more than $375 million, and it’s expected that these creditors will receive only about a penny on the dollar on their claims, according to the filings.
Page 32 of the confirmation filing states that distributions stipulated by the plan will be funded by cash on hand, proceeds from sale transactions, proceeds from monetizing the pre-petition collateral, proceeds from the sale of any remaining property and proceeds, if any, from prosecutions or settlements that result from litigation.
Objection!
Last month, the U.S. Trustee in the Conn’s case raised an objection to the plan because of the many debtor, officer and third-party releases. The trustee, Jason Ruff, specifically claimed that the releases aren’t in fact consensual because they are opt-out rather than opt-in. Citing a Supreme Court case, Ruff said positive consent is required rather than simply silence when given a chance to object.
Secondly, Ruff said the gatekeeper provisions of the releases are too broad. The plan stipulates that any disputes go through the Texas bankruptcy court and only that court. Citing a Fifth Circuit decision, Ruff contended that such exclusive jurisdiction should only apply to a narrow group of “exculpated parties,” or those specifically protected from certain claims.
The judge disagreed with both objections, deeming the releases to be consensual and the gatekeeper provisions narrowly tailored to the specific circumstances of this case.
It is common in bankruptcy cases to include broad releases designed to protect various parties from future litigation, but this plan is conspicuous for the number and breadth of them, as is evidenced by the large section of the amended plan devoted to them. The third-party releases allow creditors who voted for the plan or who did not opt out to be released from claims.
In early March, the court approved a negotiated payout to an ad hoc group of 93 former Badcock dealers for a portion of what they claimed they were owed to close out their businesses. (They claimed $5.3 million was owed.) The settlement total of $2 million ended an effort by BRF Financial to block payment, according to the Badcock group’s complaint.
BRF Financial, a division of B. Riley, was a major lender to Conn’s, and it is the amended plan’s sponsor.
Hemorrhaging
In its last full year of operation, which was the fiscal year ended in January 2024, Conn’s posted a net loss of $77 million and a slide in revenues of nearly 8%. But, the fundamentals had been problematic for years. When filing, Conn’s management cited declining sales, increased competition from online retailers and challenges in its credit operations.
Like many traditional brick-and-mortar retailers, Conn’s faced pressure from changing consumer shopping habits and the rise of e-commerce platforms. The company’s troubles were compounded by a complex capital structure involving multiple layers of debt, including asset-based lending facilities and term loans totaling hundreds of millions of dollars. When Conn’s could no longer service this debt load, the decision was made to file for Chapter 11.
The company’s retail operations have already ceased, and nearly all of the physical locations for both Conn’s and Badcock have been closed or sold.
Most of Conn’s assets also have already been sold through the court-approved process. One of the major buyers was Jefferson Capital, which acquired the servicing division of Conn’s primarily based in San Antonio. The plan also allowed the company to sell off smaller assets (called “De Minimis Assets”) more easily through streamlined procedures.
The ties that bind
B. Riley is one thread that connects Conn’s, Badcock and Franchise Group. Another, surprisingly, is Kohl’s, the department store chain. Or, if you’re like me, an Amazon drop point.
Three years ago, Brian Kahn, formerly CEO of FRG, made a bid to acquire Kohl’s at a reported $60 per share, or a total of $8 billion, according to the New York Post. According to Kohl’s, FRG submitted a proposal at $53 per share, but “without definitive financing arrangements to consummate a transaction.”
The deal didn’t go through.
As you probably know, Ashley Buchanan was fired as CEO of Kohl’s three months ago, according to the Wall Street Journal. He failed to disclose to the Kohl’s board his romantic relationship with a Chandra Holt, which was a problem because Holt owns a company that supplies Kohl’s.
Here’s the connection: In summer 2021, Holt left Walmart to become CEO of Conn’s, a position she held for less than 15 months. This year, however, Holt’s coffee startup, Incredibrews, signed an order to supply coffee capsules to “hundreds of Kohl’s stores,” according to the Journal.
Why would Kohl’s start selling coffee pods? Even more quizzically, why would Michaels, the arts and crafts chain? Michaels also sold Holt’s Incredibrew capsules when Buchanan was CEO there.
Kohl’s issued a statement on May 1 that said Buchanan had been fired for cause.
One final and rather quite tragic common theme for both Conn’s-Badcock and FRG, which owned American Freight and still includes Buddy’s Home Furnishings in its portfolio: All four of these once-proud chains sold to basically the same product points and to basically the same customer base, and they shared some of the same vendors. This is to say that for many of these vendors, which included Standard Furniture, these two huge bankruptcies have been one of Dante’s nine circles of hell. It’s one of the reasons Standard is gone, recently subsumed into Albany Industries.
(Editor’s Note: Adobe Podcast was used to transcribe the bankruptcy hearing.)
