A federal bankruptcy judge has rejected the sale of Family Christian Stores, the nation’s largest chain of Christian book and gift stores, to a bidder who promised the company’s chief executive officer a job.
The judge raised concerns about CEO and president Chuck Bengochea contacting Richard Jackson, a wealthy Atlanta businessman, about Family Christian Acquisition LLC’s bid to take over the company and keep its stores open.
The contact, during the second day of auction, was, “at the very least, reckless,” U.S. Bankruptcy Judge John Gregg wrote in a 48-page opinion.
Gregg said that the “contact during an auction is completely inappropriate due to the insider relationship and clear conflict that has infected Chuck Bengochea. Any requests for higher bids should have been placed on the record at the auction or communicated through legal counsel. Moreover, the request should have been made to all qualified bidders, not simply to an insider that has assured the Debtors’ CEO of future employment.”
He said the winning bidder was an “indisputable insider.”
He said that Grand Rapids-based Family Christian Stores could re-open the auction
Family Christian Stores wanted Gregg to approve a $43 million bid by Family Christian Acquisition, a deal backed by most shareholders. Another venture, Gordon Brother Retail Partners LLC and Hilco Merchant Resources LLD, or GBH, offered $49.8 million, with plans to liquidate the assets and pay off creditors.
The judge said Family Christian Stores was not obligated to accept what would appear to be the highest bid because risk factors within the offers can affect the value. While the auction process was flawed, the company could have had legitimate concerns about the GBH bid, the judge said.
Jackson, the Atlanta businessman, controls FC Special Funding, which is one of Family Christian Stores’ biggest creditors. It bought the chain in 2012 and turned it into a non-profit company with a pledge to donate all profits to Christian charities.
Lawyers for bidders who planned to liquidate the company said Jackson’s contact with the company’s CEO gave it an unfair edge in the bidding process.
Bengochea was offered the opportunity to stay with the company if it was sold to Family Christian Acquisition, the judge said in court records.
He said that the timing of the call, Family Christian Acquisition’s final bid and closing of the auction “cannot be ignored in light of the heightened scrutiny applied to insider transactions.”
Click here for more.