Family Christian Stores Chain Files for Bankruptcy
In a news release, Family Christian Stores announced it has filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. They have 250 stores and 4.000 employees.
Family Christian Stores was purchased in 2012 by three businessmen, Rick Jackson, Mike Kendrick and Larry Powell, and they donated to Family Christian Ministries, a not-for-profit 501(c)(3) organization. The three men retain control Family Christian Stores since Jackson is the president of the nonprofit and the other two men are directors of it according to the most recent IRS Form 990 disclosure.
Family Christian Stores does not expect to close any stores or lay off any employees, but their plan nevertheless raises questions. All companies and organizations must have more income than expenses, so the fact the bookstore chain was owned by a nonprofit is a problem. If Family Christian Stores was not turning a profit, it means that Family Christian Ministries did not receive money for Christian outreach as promised to bookstore customers. If the nonprofit received funds, it was at the expense of Family Christian Stores creditors.
If Family Christian Ministries owned the bookstore chain, there is a question about why it has not been dissolved in accordance to IRS regulations. To avoid that, it appears that the failed company will be sold to a new organization with the same leadership. A newly formed subsidiary of Family Christian Ministries will serve as the lead bidder for a Section 363 sale process, according to information supplied by Family Christian Stores.
The new entity will maintain operation of Family Christian Stores 266 stores in 36 states and its bookselling website, www.familychristian.com.
Bankruptcy a Result of Prayerful Consideration
Chuck Bengochea, CEO of Family Christian Stores, said “We have carefully and prayerfully considered every option. This action allows us to stay in business and continue to serve our customers, our associates, our vendors and charities around the world.” Bengochea has no experience in the bookselling industry; he assumed his present role in June, 2014 after serving as the CEO of The Original Honeybaked Ham Company of Georgia.
It seems that creditors may take a big hit from this prayerful consideration. According to Publishers Weekly, Family Christian Stores owes $7.5 million to the Zondervan and Thomas Nelson divisions of HarperCollins, $1.7 million to Tyndale House, $516,414 to B&H Publishing Group, $537,374 to Faithwords and $572,002 to Barbour Publishing. Spring Arbor, a book distribution company owned by Ingram, is owed $689,533.
While Family Christian Stores was losing all that money, former CEO Earl Bartow was collecting an annual salary of $501,429 plus other compensation of $51,427 according to IRS filings. The other seven members of the management team collected over $1.3 million in salary plus nearly a quarter of a million dollars in other compensation annually.
UPDATE: Publishers Weekly reported that it was revealed at the bankruptcy hearing held on February 17,2015 that Family Christian Stores owes $100 million. $58 is secured debt, and the other $40 million is unsecured debt. Unsecured creditors are unlikely to get their money back or may have to settle for pennies on the dollar.
The secured debtors are Credit Suisse ($34 million) and FC Special Funding ($24 million). The quirk in that the person behind FC Special Funding is Rick Jackson, the same person who donated the bookselling chain to Family Christian Ministries and is allegedly set to buy it back after the bankruptcy. That means Jackson will receive $24 million as a result of the bankruptcy and others will be left empty-handed.
Jackson was represented at the hearing by Todd Meyers of the firm Kilpatrick Townsend, based in Atlanta, according to Publishers Weekly. He said. “My client [Jackson] wants to wear the white hat here,” but some observers think that is impossible under the circumstances. Publishers Weekly said, “One point raised during the six-hour hearing before Judge John T. Gregg was the ‘significant issue of transparency,’ according to Credit Suisse bankruptcy attorney Jennifer Hagle.”
Business as Usual
According to Family Christian Stores, business will continue as usual after the bankruptcy. The same leadership will acquire the company and continue to run it under the same nonprofit banner. Bengochea said, “Our customers will not see any change in operations during this process. After the court approves the sale, we can begin to reinvest in our stores and bring our customers products and services that will help us better fulfill our mission.”
Family Christian Ministries also owns two other companies through their nonprofit organization, iDisciple, a website, and Giving Films, a movie production company. These two companies are not part of the bankruptcy and will continue to operate independently of Family Christian Stores the company said.