In case you missed the news, late last week the judge presiding over the bankruptcy case of the Family Christian Stores (FCS), voided the auction results on which I reported three weeks ago (see that story here).
There were a number of reasons for the judge’s decision. On page eleven of his 48 page ruling the judge called the auction process “nothing short of chaotic” and said that some mistakes had been made (page 31). On page two he said that the winning bidder was “an indisputable insider.”
This cancellation of the winning bid was done despite the cooperation of the major creditors in the situation.
What Does This Mean?
In some ways it means the bankruptcy proceedings are back to square one. They could have another auction to sell the assets. Or FCS may just go through the normal reorganization provided by Chapter 11.
As part of the voided auction they had worked out arrangements with many of their creditors. So if they provide a reorganization plan that met their creditor’s approval they could go through the process and come out of chapter 11 and go back to normal business…albeit with a smaller footprint. A previous discussion had FCS closing 16 of their 266 stores as part of their reorganization.
The clock is ticking however. According to one report, FCS’ cash reserves are dwindling. They could run out of operational funds by mid-July.
Does This Change Anything for Authors?
Nothing has changed as far as authors are concerned. The money lost in the bankruptcy is technically gone already.
If the reorganization or new auction works, then 250 locations will still have stores. And that is a good thing. Those communities will continue to have a place where they can shop. Authors would continue to have the opportunity to hold book-related events, if that local store is able to do so.
If the reorganization or the new auction does not go through, then liquidation is a potential outcome. That would mean the closure of all the store. This would affect 250 communities, 3,000 employees, and the associated connections like landlords, tax revenue, and much more.
A full report on the judge’s ruling is available on the mlive.com site (click here).
Actually I am glad. I missed the point on the “Insider” – not enough info to call that and, of course, if the auction was badly run well that is just not good enough.
However, FCS does not need to be run on a non-profit basis. I have had fights with people who got all touchy-feely about sentamentalising business – it never works and God is rarely in what sounds so virtuous. What an owner does with profits is his own indaba, but management and staff need to be held to bottom line performance, else as might happen here, everyone will be on the streets.
That, I dare say is where the roots of FCS’s problem lies – they are not behaving competitively, in a profoundly competitive market. I so hope a really visionary, passionate, Good-to-Great kind of leader can pick it up and give it new life.
Whatever they say about the online market, it is mechanistic – competitive advantage is never, has never been sustained by price, which is a core proposition of online. Sustainable advantage is all about service. Sooner or later, as in the way 80’s cars all started to look alike in pursuit of the aerodynamic ideal, firms that compete online will lose their competitive edge – and in my book, 100% efficiency off a competitively strained trading base, will lose to the 70% efficient firm that preserves its trading base through human touch.
As always, humans veer to extremes, and in this case all online is going to hurt, just as all B & M did. Banks learnt the lesson of complementary channels – the book market seems to be in need of the same.
My favorite analogy is Boeing vs Airbus in the jumbo market. Airbus went all out big but is now thinking of shutting down the A380 line in 2018. Boeing asked customers what they wanted and built a long-haul mid-jet that is a delight to fly, because it bypasses hubs. When will we learn that the obvious trend, as in all charging after online, is often not the optimal strategy? God is always in the balance.
It’s an interesting, and troubling situation.
I ay be quite wrong, but there seems to be a subjective special pleading going on. Mistakes can be found in any bankruptcy proceeding, but to call the process chaotic…well, that’s a very loaded word. You might find my work area chaotic; it does not mean that it is, and that I cannot effectively use it.
I’m also not convinced by the argument for the winning bidder being an ‘indisputable’ insider. Again, an emotive word’s been used, one that does not invite discussion. And, again, there will be those with some sort of gnosis in this sort of thing. Are they all to be banned? It would be a bit like banning a golfer from play at a tournament held on his or her home course.
I’m not a lawyer, and don’t pretend to an incisively logical mind, honed for analysis of the law (temporal or transcendent). But there is something in the mechanics of this, and in the timing – less than a month before operating funds will reach exhaustion – that makes me suspicious of a bias that is being wielded against an entity that dares uses “Christian’ in its name.
Very shrewd reading. A judge would not have come to the insider conclusion without a counter argument in court (which no doubt was laced with emotion, as possibly the chaotic auction was). So maybe someone if eyeing it all and waiting for the best price. If so, it may be a shrewd move, but then again they might just strip the value and lay off everyone – yup, such ruthlessness abounds. I hope there is just a good business mind who doesn’t want to see the delaying of the inevitable that would be the prognosis for a sentiment fed business as usual approach, when a more robust, energized and visionary approach could actually reinvent FCS.
Andrew,
Take a look at the report on mlive.com and find a better understanding of the “indisputable insider” comment by the judge. (Full link below)
It will help expand on my digest version above.
It is found in detail in the full court documents. You can access those, but only by purchasing them from the court for a couple dollars.
http://www.mlive.com/news/grand-rapids/index.ssf/2015/06/family_christian_stores_sale_t.html
Steve, you are such a gentleman and diplomat Maybe you have to be from your position. .I feel in my heart that I know that you know. I have said from day one this thing stinks to high heaven. I prayed that the judge would notice the unmistakable odor emanating from this filing up to his bench. He apparently did. I can see that most people don’t understand what is attempting to be perpetrated here.
In their defense they are not businesspeople and are likely hypnotized by the word Christian in the name. We have all been warned about that in scripture.
Matthew 7:15
[ True and False Prophets ] “Watch out for false prophets. They come to you in sheep’s clothing, but inwardly they are ferocious wolves
I feel that LifeWay,, Mardel or any number of honest, independent, truly Christian operators would take over the stores (or at least fill any void) after liquidation.
To me, hoping to keep them open under the same management is as ridiculous as permitting Bernie Madoff to launch a new “investment” fund. Some idiot would probably proclaim “well he IS offering a 25% return”. Jeeeeeeesh!
I also went off and pondered it all. The problem with insider bidding is the perception that he arranged the liquidation to shed creditors and ease cash-flows – he has a conflict of interest. It is absolutely right that the sale should be at arms length and the judge rightly ruled on that. It effectively prejudiced the public. The fact that the auction was not run circumspectly also brings into question how the public is being treated. An auction could have been held preemptively either as an auction or a sale, to restore liquidity, but now that it has gone to liquidation the proceedings have to be handled quite differently.
Steve, thank you for the link; it does provide needed background.
I’m still a bit concerned about the judge’s actions and motives; in spite of Bengochea’s contact with jackson, the FCA bid was still not the highest on offer so the comment about “requests for higher bids” is a bit puzzling.
Not contacting Jackson through counsel, and apparently not making that contact known to the other bidders was clearly improper, but it didn’t seem to affect the auction process, as the shareholders and creditors were on board with the acceptance of FCA’s lower, and winning bid.
I’m not sure how germane the “offer of continued employment” for Bengochea really is; it’s my understanding (and I may be wrong) that the judge could have blocked that part of the deal, and barred Bengochea from continuing with the company.
The really unfortunate part of this is that the timing gives what I, at least, perceive to be a distinct advantage to those who would liquidate FCS. To pull together another non-liquidation deal, after this (with what seems a hostile judge) and regain the support of both creditors and shareholders will be much harder.
Again, I’m not a lawyer, so these are essentially uninformed opinions. But I am worried at the portents I see.
I know what this has done to publishers in regards to force reduction already. First off, that does indeed mean christian publishers are suing a christian bookstore. That alone feels gross but we can forgive this in the name of the almighty dollar… right??? This feels like an ugly christian divorce currently and many that work on the inside of the businesses affected by this are ashamed and saddened.
The percentage of people claiming to be Christian is going down across the world and technology is continuing to affect the publishing environment at an exceedingly rapid pace. These two factors alone are affecting FCS negatively. Would you prefer to buy another leather bound bible or open up your bible app that allows you to be more organized in a “cloud” environment these days? YouVersion.com anyone? Similarly, the same can be said for their printed books vs. ebooks etc. It’s not a new issue but it is one they don’t know how to fix… yet.
It’s well known that the Bible is the worlds best selling book of all time with all it’s specialized versions and translations, yet we are faced with FCS failing. What does that really mean? With all of the articles written about this tumultuous process so far, the public has seen and read what feels like corruption and dishonesty and that affects the reputation and future of FCS.
Barnes & Noble is heading the way of Borders and everyone knows how sales have plummeted at FCS. Retail bookstore chains are suffering and need to adapt so they don’t become a wifi hotspot or coffee shop with a large selection of books to read(and not buy). I’ve seen bankruptcy and restructuring delay inevitable failure many times but many are left wondering if it’d be better to just liquidate FCS in order to wake up christian culture from their stubborn close-mindedness.
So far, the bidding process here has failed with FCS cash reserves running dry in July you better believe people are on edge. The CEO of Family Christian Bookstores was also trying to protect himself with securing a future job but helped mess up the bidding process according to the judge, who in my opinion made the right decision.
These things get dragged out while people suffer and come away with a bad taste in their mouth. My recommendation for all employed with these companies is upgrade… avoid a future headache and get on the job search, NOW.
I wouldn’t get too emotional about it. Christians also lose businesses and it is uber painful. It also tests character and can bring both the best and worst out of anyone. However, the law also runs its own course and often disregards the people involved. A liquidation can be very disempowering to management and owners – somewhat justly so as they have lost control and creditors must be shielded as best as possible. That said, the law also seeks to balance the need to protect jobs and maintain a going concern as far as possible. Cities of refuge were the biblical equivalent of today’s legal refuges like liquidation – its a way of letting owners rehabilitate as equitably as possible. I haven’t lived through a liquidation but I did take over the finances of a firm that was in serious tax default, with severely strained cash and demanding creditors – wow it was hard, especially as the demands mounted up – hey, when you are down, life sure kicks you down more. Finance houses are far more esteemed by society than bookstores, but everyone got over the 2008 bailouts and all that went with it – now this industry bleeds, but it will heal.
Thanks for reading the legaleze-laced gobbeldegook and giving us the Reader’s Digest version. While this store’s evolution of ownership may be legal, it doesn’t seem to be honest. Meanwhile, I’m buying print books at Lifeway.