Family Christian settles dispute tied to consignment goods ownership

By Caroline Salls

Pittsburgh, July 17 – Family Christian, LLC requested court approval of a settlement reached with an informal consortium of consignment vendors, according to a Friday filing with the U.S. Bankruptcy Court for the Western District of Michigan.

On March 6, the consortium filed an adversary proceeding against Family Christian, claiming that the consigned inventory of its members is owned by the respective counter-party to the consignment agreement and is not property of the Family Christian debtors’ estates under Section 541 of the Bankruptcy Code.

The company said the inventory in question is the property of its estates and is subject to “strong arm powers” under Section 544 of the Bankruptcy Code.

As part of its cash collateral use order, Family Christian said it holds cash proceeds from the post-bankruptcy sale of consigned inventory, pending resolution of the adversary proceeding or further court order.

Specifically, as of July 4, Family Christian said it is holding $5.56 million in post-bankruptcy sales proceeds attributable to the consigned inventory of the consortium members.

Also as of July 4, the company said it was still in possession of $13.99 million of consigned inventory, of which $8.81 million is attributable to the consortium members.

According to the settlement motion, the consortium has argued that the post-bankruptcy sales proceeds cannot be used by Family Christian, and the inventory cannot be sold by the company, unless it is first determined through the adversary proceeding to be property of the Family Christian estates.

Under the proposed settlement, the company may use all but $1.5 million of the consortium sales proceeds. That $1.5 million of proceeds cannot be used until the earliest of confirmation of Family Christian’s Chapter 11 plan, further order of the bankruptcy court or agreement of the parties.

In addition, Family Christian will pay $500,000 to the consortium, which includes fees and expenses incurred by the consortium’s professionals.

On the plan effective date and payment of the settlement amount, the consortium will discharge all claims in the adversary proceeding and all claims to the sales proceeds.

Also under the settlement, the buyer of Family Christian’s assets will pay the consignment portion of each member’s claim, with the treatment being incorporated into the Chapter 11 plan.

Family Christian, a Grand Rapids, Mich.-based retailer, filed for bankruptcy on Feb. 11. The Chapter 11 case number is 15-00643.

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