Benjamin Capital Advisors was charged with returning the company to profitability, crafting a zero-based budget, and arranging a monthly reduction of debt to the company’s primary supplier.
Bath and Kitchen Chain Store
New York, New York
This leading chain store was the successor to a 40-year-old, reputable retail chain store that had emerged from five years in Chapter 11 in an extremely weakened condition. It lacked an effective business plan and competent leadership. The new company, which was now owned and controlled by its secured creditor, a major money center bank, had assumed the sizable debt of the previous entity and was operating on a cash-flow-negative basis. Its primary supplier was continuing to provide substantial trade credit while exerting pressure on the parent company to pay down its previous debt.
The company was the leader in its industry, ceramic flooring products and bath and kitchen fixtures. The founding family continued to manage the business after its emergence from Chapter 11 and had a small remaining equity interest. The company’s primary supplier inappropriately and erroneously assumed that the new entity’s parent, a major financial institution, would guarantee the past and present debt of its new subsidiary.
Benjamin Capital Advisors began as advisor to the company’s board after its emergence from bankruptcy. During the five-year term of the bankruptcy, a Wall Street investment banking and financial consulting firm had advised the company’s operations. BCA’s initial assignment was to evaluate the business plan and determine the causes of the negative cash flow and poor operating results. BCA concluded that the existing business plan was not achievable and was without merit, and that management was not capable of managing the steps necessary to turn the business around.
The board retained BCA to replace the former consultants. BCA was to develop a new business plan with the proviso that it would require no new infusion of capital. Benjamin Capital Advisors was charged with returning the company to profitability, crafting a zero-based budget, and arranging a monthly reduction of debt to the company’s primary supplier. As the board was determined to sell the company, BCA also was to research and identify qualified potential acquirers.
The company’s revenues and profitability grew each month in accordance with the business plan. However, the primary supplier assumed an increasingly intransigent position, believing that pressuring the company would lead its deep-pocketed parent to pay its entire outstanding debt.
BCA negotiated the company’s potential sale with more than a dozen qualified acquirers. BCA also continued attempts to negotiate payment terms with the primary supplier. The determined supplier insisted on payment in full from the company’s parent or it would cease the shipment of goods. Ultimately, because of the supplier’s illogical tactics and intransigence, the board of directors voted to execute an orderly liquidation of the company.
BCA was retained to liquidate the company within a 60-day period. All creditors agreed to a reasonable and fair payment of their outstanding debt, with the single exception of the primary supplier, which decided to sue the parent. The suit lasted approximately one year and proved unsuccessful. BCA sold many of the company’s stores to its major competitor, resulting in a fair and reasonable return to its creditors and parent company.
BCA acted as disbursing agent for the company estate and performed litigation support activities as needed. During this phase, BCA also sold the remaining fixed assets, wound down the corporate headquarters and dissolved the corporation.
The parent company prevailed in the litigation with the primary supplier. The secured creditor and shareholder received a reasonable recovery, as did the general unsecured creditors.