by Included in the claims: Misleading the court about ties to former FRG CEO Brian Kahn
The new owners of Franchise Group, led by Octagon Credit Investors and Garnett Station Partners, filed suit in bankruptcy court Wednesday against AF Newco, accusing the buyer of American Freight assets of breach of contract, threats to delete critical corporate records and misleading the court about ties to FRG’s former CEO, Brian Kahn.
The complaint paints a picture of a company engaging in obstruction, delay and even attempted coercion. The allegations, if upheld, could expose AF Newco to damages, court orders and reputational harm.
AF Newco was approved as the buyer of 31 American Freight stores in January for $1.12 million, or an average of $36,000 per location. At that bankruptcy court hearing, testifying on behalf of AF Newco was Michael Piper, the group’s “managing member” and once CFO at Liberty Tax, where he reported to Kahn.
FRG owned Liberty Tax until July 2021, when NextPoint Financial acquired it.
Matthew P. Ward, a lawyer representing Buddy Mac Holdings, cross-examined Piper under oath at that January hearing. Ward was interested mainly in whether Kahn was a part of the American Freight buying group. Here’s a snippet of that testimony, according to a transcript of the hearing:
Ward: “Is Mr. Kahn presently or anticipated to be an owner or investor in the business?
Piper: “No.”
Ward: “Does AF Newco have any business with Mr. Kahn?”
Piper: “No.”
Ward: “Any agreements with Mr. Kahn? Any investors in any way related to Kahn?”
Piper: “No.”
Piper identified AF Newco’s owners, in addition to himself, as Brent Turner, former CEO at Liberty Tax and a longtime associate of Kahn; Piper’s brother, Scott Piper; Jack Kleinert; and Boston-based Frontier Capital.
Referral agreements
In a separate line of questioning, Piper testified that part of AF Newco’s financial portfolio is $3.5 million received from American First Finance, the company Kahn immediately installed at Badcock after that acquisition, a company with which FRG had a referral agreement. Piper said the payment by AFF was to secure the exclusive right to finance AF Newco’s customers.
The complaint filed Wednesday raises fresh questions about Kahn’s involvement in the furniture retail sector.
Piper’s testimony was “critically important given the scrutiny and litigation surrounding Brian Kahn’s conduct,” the complaint states. “It has since come to light that Mr. Kahn is now involved in AF Newco’s operations. Indeed, based upon information and belief, Brian Kahn is purportedly the CEO of AF Newco, and his management decisions have included hiring his sister. Thus far from having no involvement in AF Newco, Brian Kahn appears to have control over the company” (emphasis in the original).
The adversary complaint comes just four months after FRG confirmed its reorganization plan and emerged from Chapter 11 proceedings.
The complaint also accuses AF Newco of jeopardizing FRG’s ability to comply with court and regulatory requirements by restricting access to data systems that store the reorganized debtor’s records. In June, AF Newco ordered IT providers to terminate licenses and delete files, including documents subject to a preservation order and an SEC notice, according to the filing.
Destroying records?
FRG’s complaint states that the company had to prepare an emergency restraining order motion and make repeated appeals to outside IT firms to prevent destruction of the records. AF Newco eventually restored access, but FRG warns the court in its filing that the risk remains.
“Despite the Reorganized Debtors’ efforts to resolve these issues cooperatively, most of the time they have been met with silence or empty promises from AF Newco,” the filing states.
In a separate allegation, the complaint states that Piper conditioned data access on FRG agreeing to sell two Buddy’s Home Furnishings stores to AF Newco, a condition “presented (as) an ultimatum.” FRG refused, citing its franchise agreement with the Buddy’s franchisee.
The breach of contract claim relates to what FRG’s complaint describes an oral agreement reached in May 2025 to extend and amend a transition services agreement reached by FRG and AF Newco. Under the terms of the TSA, AF Newco was to provide payroll and IT services while FRG covered related costs. FRG claims that AF Newco failed to perform, leading to “hundreds” of tax and payroll delinquency notices from states, including Virginia, Ohio, Louisiana and Massachusetts. Emails to resolve the issues went unanswered, FRG states.
The complaint also describes months of stalled negotiations over a written agreement. When AF Newco finally delivered a draft in August, Franchise Group rejected it as inconsistent with prior terms.
FRG is seeking damages, a declaratory judgment that the oral agreement is enforceable and a court order compelling AF Newco to meet its obligations, including payroll, tax and IT services.
The complaint also emphasizes the stakes for FRG’s recovery, warning that data loss or unpaid tax liabilities could cause regulatory and financial harm.
As of yesterday, AF Newco had not yet filed a response. Emails to both Octagon and Garnett Station have not been returned, nor has an email query to Christopher Grubb and Ducera Partners, an investment banking firm working with FRG to sell off Buddy’s.
Roller coaster
Wednesday’s complaint marks the latest chapter in the high-stakes bankruptcy saga of Franchise Group, which once controlled a sprawling portfolio of retail brands including The Vitamin Shoppe, Pet Supplies Plus, Buddy’s, American Freight and Badcock Home Furnishings.
The complaint or, more accurately, the substance of the claims made in the complaint complicate FRG’s plan to sell off Buddy’s in order to focus on Pet Supplies Plus. FRG had an offer to buy Buddy’s months ago, according to people close to the negotiations, but so far FRG has not pursued the offer. Meanwhile, the financial situations of the franchisees have become more precarious since that outside offer was made, complicating prospects for a sale.
Andrew Laurence, who replaced Kahn as FRG CEO in January 2024, does not appear to be with the company, though when he left is not known. It is also unclear what role if any the board that was constituted as part of the reorganization plan is playing in the operation of the company. It is not known, therefore, whether anyone with any experience in the furniture industry is in a position to negotiate on behalf of FRG with potential buyers of Buddy’s.
