by TUPELO, Miss. — The day it abruptly ceased operations, United Furniture Industries told its primary lender that it needed a significant amount of money to continue operations.
If it didn’t receive this money, it said, it would not be able to fund its business going forward.
The lender, Wells Fargo, declined, saying it could not provide the additional funding on such short notice and without additional information, including a budget for restructuring purposes. It also sought internal credit committee approval at Wells Fargo.
The industry already knows how this turned out for United and its 2,700 employees.
Later on the evening of Nov. 21, United sent an email to its entire staff saying it was abruptly ceasing operations, a move that not only ended their jobs, but also any extended health benefits typically allowed under COBRA.
At the time that Wells Fargo refused the additional funding without certain parameters, United already owed the bank a principal amount nearing $100 million — $99,208,769.05 to be exact — and was already in default based on certain provisions of the credit agreement.
This financial scenario was described in a Dec. 31 declaration filed in the U.S. Bankruptcy Court for the Northern District of Mississippi by Wells Fargo Managing Director Marc Grossman. The declaration was part of the bank’s and two other petitioners’ request for an involuntary Chapter 7 bankruptcy petition relating to UFI.
As part of that motion, the bank and the two other petitioners seek the appointment of a Chapter 7 trustee to help take control of, and with the bank’s assistance, liquidate all the company’s assets to “preserve and maximize the value of UFI’s assets for the benefit of all creditors.”
The declaration goes on to spell out other details of its business relationship with United, which was formed in 2000 from the merger and acquisitions of Comfort Furniture, Parkhill Furniture and United Chair.
According to the document, Wells Fargo and United signed a credit agreement on Jan. 28, 2021, that has been amended four times: March 8, 2021; Jan. 31, 2022; June 30, 2022; and July 1, 2022. According to this agreement, Wells Fargo agreed to provide a revolving credit facility of up to $130 million to United and related entities.
Advances under the facility were fully secured by all of UFI’s personal property and other assets, including its cash, receivables, inventory, chattel paper, furniture, equipment and books and records, “on all of which Wells Fargo has a lien.” Thus, UFI also granted the bank a first priority security interest in various components of its property.
Grossman said he learned of the company’s planned closure later on the day of Nov. 21 from UFI management.
This, he said, left the company without security at any of United’s 15 properties, which are located in North Carolina, Mississippi and California. The bank said it also had reason to believe the facilities also lacked insurance coverage after Nov. 30.
“Once notified of UFI’s decision to shut down, Wells Fargo immediately reached out to UFI’s senior leadership to address the consequences of the actions taken by the board of the alleged debtors,” Grossman said in the declaration. “However, on Nov. 22, Wells Fargo was advised that all officers of UFI resigned effective immediately, with the exception of UFI’s CEO and CFO, both of whom resigned Nov. 23, 2022. Thus, with no assistance coming whatsoever from UFI’s management, Wells Fargo immediately stepped in to preserve its collateral and maintain some order in liquidating UFI.”
Grossman added that on Nov. 22, the bank retained Focus Management Group, a crisis management and turnaround advisory firm, to secure all of UFI’s properties and “begin the arduous process of liquidating Wells Fargo’s collateral.” In addition to hiring security for all of UFI’s properties — which reportedly kept some employees and contractors from initially obtaining their property locked up on UFI’s premises — the bank said it also obtained insurance on UFI’s inventory.
Yet despite these measures, the declaration said that due to the abrupt closure, “numerous issues ancillary to liquidation of the collateral have arisen that are overwhelming Wells Fargo’s ability to preserve and monetize its collateral.”
These include the following:
+ Many creditors have contacted the bank regarding claims against UFI, which include claims for property allegedly held by UFI on their behalf. This includes claims for goods owned by third parties that were reportedly left in UFI’s trailers, goods owned by numerous equipment owners, lenders and lessors seeking to reclaim their equipment, and employees seeking to recover their personal belongings and tools. Some employees have reportedly gotten back their property, and the bank said it continues to work with creditors that have approached it to have their property returned.
+ Wells Fargo said that it also has been the subject of direct actions by creditors seeking recovery of goods that the alleged debtors were transporting on behalf of third parties.
+ The declaration also noted that many employees have been contacting Wells Fargo regarding claims they have against UFI and to retrieve their personal effects from UFI’s facilities following the company shutdown.
+ Certain landlords have reportedly locked up their facilities and denied access to anyone, including Focus Management Group.
+ Remote data access remained available to all former employees after the shutdown and Focus “was required to take immediate actions to safeguard UFI’s data and electronic records.”
The bank said that while it has worked with creditors to resolve these and other issues, it has “no duty to such creditors and has been required to proceed on an ad hoc basis without having the institutional knowledge of the 2,700 former employees of UFI to address these claims.”
“Moreover, the declaration continued, “the magnitude of claims and issues are accelerating. All creditors would thus be best served by an orderly liquidation of the alleged debtors by a Chapter 7 trustee in a Chapter 7 bankruptcy case.”
It added that immediate steps must be taken to name an interim trustee “to take control of and with Wells Fargo’s assistance, liquidate the alleged debtor’s assets in order to preserve UFI’s assets for the benefit of all creditors, the largest and most senior being Wells Fargo’s.”
And of the $99.2 million it is owed? The bank estimates that “any recoveries from the liquidation of its collateral will result in a recovery equal to a fraction of this amount.” As such, it said, it is an eligible creditor authorized to file an involuntary petition according to bankruptcy code.
