Less than one month after Crown Books filed for bankruptcy (News, Feb. 19) Wallace's Bookstores and Wallace's Book Co., the college bookstore management company and college text wholesaler, respectively, have filed for Chapter 11 bankruptcy reorganization in federal court in Delaware.
The bankruptcy court judge tentatively approved financing that should keep the companies in business for another six weeks. The value of the package is about $40 million, but includes some loans already made to the two companies. The deal has been questioned by major creditors because the loan agreement gives the lending bank a high degree of control. In addition, one creditor has sought to have the case moved to Kentucky, where the companies' headquarters is located.
The two companies are largely owned by Wallace Wilkinson, the former Kentucky governor who declared personal bankruptcy last month and has acknowledged debts of more than $340 million (News, Feb. 19). Much of the money went to Wilkinson's ecampus.com, the online college retailer that has floundered. Wilkinson owns all of Wallace's Book Co. and almost 75% of Wallace's Bookstores.
Attorneys for the Wallace's companies also indicated that they are trying to learn whether money had been improperly transferred from Wallace's Bookstores and Wallace's Book Co. to the Wilkinson family or to other Wilkinson businesses. The lawyers also stated that the two companies need $7.8 million to operate for the next six weeks, but should take in only $3.5 million in cash during that time.
In related moves, Wilkinson has been relieved of his position at the Wallace's companies. Clisby M. Jennelle III, the CEO of Wallace's Bookstores, has added the title of chairman. Patrick O'Malley, a management consultant at Development Specialists, has joined the company as interim chief financial officer.
The companies said they owe their 20 largest unsecured creditors $52.2 million. The largest creditors are Pearson Education at $12.7 million, and Thomson Learning at $8.6 million.
In the wake of the bankruptcy filing, Wallace's Bookstores let 60 employees go. With financing from IBJ Whitehall Business Credit Corp., the Wallace's companies said they plan to continue operating their 92 bookstores and are talking to potential buyers.
Reportedly, assets of the bookstore companies and individual stores have been pledged to Whitehall, a subsidiary of the International Bank of Japan, as collateral for financing. For a time, the financing plan had been thrown into disarray. Wilkinson's largest unsecured creditor, the United Co., in Bristol, Va., filed a motion to have the case transferred to Kentucky, although the financing plan was dependent on the bankruptcy filing being made in Delaware. Apparently, the financing company believes that the Wallace's companies will have to be sold and that Delaware is a more advantageous site than Kentucky for such a sale.
In addition to textbook publishers, other unsecured creditors include several colleges, to which the company presumably owes various fees, as well as ecampus.com.