Family Christian Stores drops bankruptcy plan
"Family Christian Stores has withdrawn a proposal for a controversial bankruptcy plan criticized by debtors for ties between the seller and buyer that were too close for comfort.
The company gave no reason for the move, but it seems likely the Christian retailer will pursue another form of Chapter 11 restructuring. According to documents filed with a Michigan bankruptcy court last month, Family Christian Stores (FCS) owes $57 million to banks and another $40 million to publishers and vendors for inventory it bought on credit. Add in miscellaneous debts, including unpaid taxes and utility bills, and it has a total of about $107 million in liabilities.
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FCS had proposed selling all its assets to a single buyer to raise money to pay off its creditors. That move, known in bankruptcy law as a Section 363 sale, or simply a '363,' is quicker than writing a traditional restructuring plan and is subject to less oversight from creditors, said Steve Ware, a professor at the University of Kansas School of Law who specializes in bankruptcy.
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Ware said the fact the company wanted to buy itself should have given creditors pause. The arrangement raised the question of whether FCS would do its best to minimize creditors’ losses by getting a good price.
'The president of the debtor ought to be thinking, like a seller, ‘I want to get as high a price as possible,’' Ware said. 'But if he is also the buyer, than he’s conflicted, and he won’t want the seller to get as high a price as possible.'”