by End consumers can’t understand why they can’t get their furniture
WILMINGTON, Del. — A story out of Tampa, Florida, via WFLA TV features a disgruntled American Signature customer befuddled as to why she can’t get the furniture she ordered months ago, a refund or even in-store credit.
It’s good TV for local stations, who get to present themselves as champions of ordinary folk who have been potentially victimized by unscrupulous businesses. WFLA’s recurring spot, “Better Call Behnken,” follows a now familiar script, one that leads with a sympathetic summary of the consumer’s plight and that includes such visual tropes as video showing the intrepid reporter boldly entering the doors of the business in question.
Putting aside the problems of superficial TV “journalism” for the moment, the real import of this sort of coverage is the cumulative effect on the furniture industry’s reputation and the accruing mistrust toward the industry on the part of otherwise would-be furniture buyers, people who can’t be expected to know or appreciate the peculiarities of U.S. bankruptcy law and its all-important distinction between secured and unsecured creditors.
Had the local American Signature staff in Tampa been better informed, trained and empowered, they could have at least attempted to explain why customer orders not shipped before the bankruptcy filing likely won’t get shipped. They could briefly lay out that because unshipped furniture becomes (again) assets of the debtors, this furniture also becomes the means with which to repay secured creditors. In the case of American Signature, the end consumer has virtually no chance of getting his or her money returned, and that’s even if that customer knows or (quickly) learns he or she must file a proof of claim as an unsecured creditor to even have a shot.
If the vagaries of bankruptcy aren’t confusing enough, how about a store very visibly going out of business, plastered with urgent signage as inevitably it is, but somehow still receiving new inventory, including furniture lines it has never carried before? How could a regular Joe know that it is customary for the liquidation specialists hired by the debtors to have a standard playbook that includes buying new inventory to spruce up the store floor?
Not even an email?
To add insult to injury in the Hansons’ case, though American Signature had an impressively detailed plan to liquidate when it filed, including an “insider” stalking horse buyer, it had exactly zero plan to refund end consumers or even to communicate with them in any intentional way. Presumably customers discovered their plight because of another furniture bankruptcy refrain — the cascade of localized “Furniture stores closing” stories that sprout wherever the chain filing 11 has (or had) stores.
Is it too much to ask debtors to include in their plan simply alerting customers to the fact that a proof of claim is needed, perhaps even to provide resources for filing those claims? No, it isn’t.
As we’ve noted before, ASI’s elaborate plan of operations includes mostly partners controlled by the Schottenstein family, which is to say, the same folks that control the bankrupt retail chain, according to the declarations filed in the case. The web of conflicts of interest include “certain of the debtors’ leased stores and distribution centers,” according to the declaration filed by co-chief restructuring officer, Rudy Morando, and “additional transaction counter-parties with the debtors [that] are beneficially owned by, or affiliated with, the Schottenstein family.” In short, the Schottenstein family controls the seller, the buyer, the lenders, the liquidator and a significant portion of the real estate portfolio.
Thus, the lenders, GOB specialists, consultants, restructuring advisers and the many, many attorneys all will get paid, and in most cases, rather handsomely, but Lori Hanson and her husband in Tampa are stuck with a blue jewel-tone power sofa. They won’t be getting the $2,400 matching chairs they bought along with the sofa, chairs that were supposed to have been delivered this month.
Sorry, Mr. and Mrs. Hanson. Best wishes finding blue jewel-tone recliners that match that beefy sofa. And sorry about that $2,400. Rest assured that it has already been spent on attorneys’ fees, because in these proceedings, even the attorneys hire their own attorneys.
Coincident with the ASI bankruptcy was a story in the Robb Report on Jay Schottenstein’s Florida vacay home that is up for sale for a cool $34 million. In one of life’s little coinky-dinks, as of ASI’s petition date, the company had $39 million in outstanding revolving loans and obligations, according to Morando’s declaration. And because the Schottensteins are Ohio-based, that 14,000-square-foot waterfront penthouse in Key Biscayne probably isn’t even a primary residence. I’m not a socialist, but even in the context of capitalism, this isn’t a good look.
Hearing set for Wednesday
Despite the many conflicts of interest, regardless of an independent conflicts committee that numbers exactly one person, Adam Zalev, and despite the noble effort of the U.S. trustee in this case, Tim Fox, to insert some measure of sanity by raising objections to the many conflicts of interest, the ASI Chapter 11 just keeps barreling forward. A hearing is scheduled tomorrow afternoon on transitioning to the stalking horse buyer. If there is any hope left for the Hansons and their two blue recliners, it might be in a filing made Saturday by the committee of unsecured creditors deposing the debtors for that hearing in Delaware bankruptcy court.
The committee included on its list of topics for this deposition the timing and preparation of the bankruptcy petition and the decision-making connected to the bankruptcy, the reasons for the constitution of the conflicts committee and the appointment of Vara, Vara’s investigation of related party transactions, transactions with Schottenstein Stores Corp., and other inter-company transactions, among several other matters, according to the committee’s court filing.
American Signature and ASI Purchaser filed an amended agreement on Friday, retroactively extending key deadlines and modifying the terms for the selling off of all assets. With no auction necessary, the sale hearing is set for Feb. 4, with court approval coming as early as the next day.
The amendments introduce the concept of “Net Liquidation Sales Proceeds,” or revenue from the liquidation sales that American Signature will retain if the amended agreement is approved by the court. The purchase price that ASI Purchaser would ultimately pay would be reduced dollar-for-dollar by these proceeds in an arrangement meant to solve how to handle ongoing business operations, including inventory liquidation, while simultaneously pursuing a going-concern transaction. It’s likely neither the secured creditors not connected to the Schottensteins nor the unsecured creditors are crazy about this net liquidation change, so we will see what happens.
Asset sales
The debtors also motioned for approval of two asset sales: about $600,000 in inventory to Summit Warehousing for $200,000 and nine store leases to Michigan-based Gardner White Furniture Co. for approximately $4.5 million, including $1.5 million in cash. According to court documents, Gardner White was the only serious bidder for the properties, which are in Chesterfield, Clinton Township, Flint, Traverse City, Lansing, Grand Rapids, Portage and Novi, Michigan, as well as Holland, Ohio.
The $200,000 inventory sale involves mostly home décor that Summit had been servicing for ASI, according to the motion. ASI moved higher-demand products to retail stores, leaving lower-demand merchandise at the Summit warehouse, so the sale would simply allow Summit to take possession of the goods already at their Fort Wayne, Indiana, facility, the motion states. ASI maintains the $200,000 purchase price represents fair market value for the inventory, despite the substantial markdown.
It is not known whether somewhere in all of that home décor is a big blue recliner. Or two.
