by Court also OKs settlement between Buddy Mac and Phonix RBS
HOUSTON – The 2,170th filing in the Conn’s-Badcock bankruptcy has the Texas comptroller pushing back hard against the debtors’ attempt to erase a tax bill of more than $24 million. The filing came this past Wednesday.
Once a prominent furniture and appliance chain in the Southeast and Texas, Conn’s filed for Chapter 11 bankruptcy protection in July 2024.
The sales tax dispute centers on an audit covering July 2011 through February 2015, as well as a separate refund request for a later period. The debtors argue that the comptroller’s claim is methodologically flawed, that Conn’s owes nothing and that the state actually owes Conn’s more than $4.2 million.
The comptroller’s response: Denied, don’t think so and not a chance!
Under Texas law, once the comptroller issues a tax certificate, it’s presumed correct. And like instant replay in professional sports, it takes a preponderance of evidence to overrule the call. The burden falls squarely on Conn’s to prove the call was wrong, and the comptroller argues that the plan administrator fails to reach that high bar.
Flashpoints here include “bad debt” credits and the practice at Conn’s to use its own customer contract terms that followed federal income tax rules rather than those of Texas. The comptroller argues this is like a store rewriting the rule book in the middle of the game; Conn’s can structure its contracts however it likes, but the state was not a party to those contracts and is not, therefore, bound by them.
A second battleground involves so-called “Deemed Recoveries,” or estimates of money collected on bad debt accounts that Conn’s sold to third-party debt buyers. Texas rules require the retailer to account for what those buyers eventually recovered, and if they can’t produce the records, the comptroller estimates recovery at 2.5 times the sale price of the accounts. The plan administrator called this methodology invalid; the comptroller calls it standard procedure
The comptroller also noted it had already voluntarily waived all penalties and some interest, but it pushed back on claims that remaining interest should be forgiven because Conn’s contributed to delays itself by failing to provide roughly 400 requested documents until after the original objection was filed. This is all according to the comptroller’s objection, which is signed by, among others, Ken Paxton, Texas’ attorney general.
A hearing on the matter is scheduled for March 3.
Who owns the name?
One more note on the Conn’s case: A while back we wondered in this space what might happen to Conn’s and Badcock intellectual property, including logos, names, trademarks, URLs and the like. It has to be worth something, right? A lot of sweat equity went into making each a trusted brand in the markets they served with, collectively, more than 550 stores.
I have an answer for you.
The chain’s IP and trademarks were bundled with its consumer finance business rather than its retail operations and sold to Jefferson Capital Systems. Apparently, because Conn’s operated primarily as a credit-driven retailer, its brand and data were closely tied to its loan servicing.
The $340 million sale to Jefferson Capital took place in late 2024 after the debt-buying and servicing firm emerged as the stalking-horse bidder. Because all of the stores were liquidated, remaining options for using some of that IP are limited, but it still has value. Most importantly, that IP allowed Jefferson Capital to continue using the brand names while collecting on debts and managing the transition of the credit business. Call it operational legitimacy. When all of that is wrapped up, those brand names likely die on the vine.
A 25-year-old company, Jefferson Capital went public last year, and it was that IPO money that Jefferson used to make the deal for Conn’s. According to its website, Jefferson uses data analytics to predict which consumers are most likely to pay back their debts. The company often buys debt for pennies on the dollar, then works to collect a portion of the original balance.
Buddy Mac Holdings
We will stay in Texas but shift to Dallas for an update on Buddy Mac Holdings. A former subsidiary of B. Riley, GlassRatner is managing and advising this bankruptcy, appointing Mark Shapiro as the chief restructuring officer. Shapiro has been busy soliciting bids for what’s left of BMH, and the deadline for those bids passed end-of-day Friday. I haven’t been able to confirm it, but it’s my belief that no bids came in, leaving the stalking horse, Phonix RBS, with rather coincidentally the ashes of the once-proud BMH/Buddy’s Home Furnishings empire. (Phonix has to be a derivation of Phoenix, the mythical bird rising from the ashes to live anew.)
It’s surprising to me how cozy the big bankruptcy business or “industry” really is. The same small groups of administrators (i.e., GlassRatner, Berkeley Research Group), advisory and consulting companies, law firms, real estate companies and even judges keep popping up over and over. For example, there is one degree of separation among most of the major players in the bankruptcies of Conn’s-Badcock, Franchise Group, American Signature and Buddy Mac.
For example, GlassRatner was acquired by B. Riley Financial in August 2018. B. Riley then sold off to TorQuest Partners last June. B. Riley, which rebranded as BRC Group last month, did pretty well, buying GlassRatner for $9 million and selling it for $118 million, a significant part of BRC Group’s balance sheet turnaround in the second half of last year. BRC Group is expected to file its annual report next month, and that report is expected to show quite a bit of progress shaking the stink from its series of bad loans to and investments in Franchise Group.
Judge Michelle V. Larson in Dallas did approve the “emergency settlement” between BMH and its primary lender, Phonix RBS, resolving the primary point of contention in that Chapter 11 proceeding.
Larson signed the order last Tuesday, blessing a deal struck on Jan. 25, the same day that a second wave of BMH subsidiaries filed for bankruptcy. Under the court-modified terms, Phonix RBS/AF Newco walks away with the largest slice at 55%, the MacDonald Family Irrevocable Trust receives 25%, and the bankruptcy estates themselves retain 20%.
Thus, Phonix RBS and its bid of $9.7 million, part of an asset purchase agreement that includes credits and provisions worth up to $2.7 million, are likely to be approved during the hearing scheduled for Thursday. While not what Phonix RBS likely had in mind when it acquired a $12 million loan to BMH by a bank in Wichita, the deal does salvage about 45% of what clearly was a risk. It also ends the litigation between the two parties.
At that Thursday hearing, the court will consider a motion to hire Scarborough Commercial Real Estate to act as broker for the debtors, setting up liquidation and closure of some and probably most of the remaining Buddy Mac stores. It’s also possible a buyer or two could acquire stores from Phonix RBS. For example, SKC Enterprises, an RTO chain operating in Missouri as Rent One, sat in on a few of the hearings, and at least one other RTO chain is known to have considered making a bid.
Phonix RBS is a subsidiary of AF Newco, buyers of American Freight out of bankruptcy from Franchise Group 13 months ago.
