A United States Bankruptcy Court has denied the sale of Family Christian Stores, the largest retail Christian chain in the country, to FCS Acquisition (a company founded by FCS owners to buy back the business). The ruling was detailed in a memorandum decision filed on Thursday in Grand Rapids, Mich.
Family Christian Stores, which has 266 locations in 36 states, filed for bankruptcy in February after several years of falling sales.
The denial of the sale motion was based on several factors: Hilco Merchant Resources, LLC, and Gordon Brothers Retail Partners LLC (Gordon/Hilco)--both liquidators--made bids on the chain, and both have standing to object to the sale. Additionally, the auction process during which FC Acquisition was named the “highest and best” bidder included several mistakes, though the court said it ultimately did not "find that the auction was unfair or fraudulent.”
The court was especially troubled by a telephone call from Family Christian CEO Chuck Bengochea to FC Acquisition owner Richard Jackson during the sale auction, asking him to increase FC Acquisitions’ bid.
A third objection says that the debtors “failed to articulate a sound business justification for the sale to any of the bidders.”
The memorandum states that the court finds "the Debtors have not satisfied their burden under heightened scrutiny, as the insider nature of sale to Acquisition simply does not permit this court to approve the transaction, notwithstanding the overwhelming support from the Debtors’ major stakeholders."
While the court denied the sale of Family Christian Stores to FC Acquisition, it also reports that it cannot approve the sale to Gordon/Hilco or to FC Special Funding, which helped finance FC Acquisitions’ bid.
The memorandum suggests that Family Christian may reopen the auction and take bids from Gordon/Hilco, FC Acquisition and others. If the auction is reopened, the court has ruled that the U.S. Trustee’s office will closely monitor all aspects of the auction and file a written report on the events.
The decision comes nine days after a 14-hour hearing in Grand Rapids on June 9 that began at 9 a.m. and ended just after 11 p.m. The morning was spent negotiating a deal between FC Acquisitions and secured and unsecured creditors. That deal was presented to the judge, with agreement from all parties.