A federal bankruptcy court trustee is trying to recover more than $105 million from the family behind metro Detroit furniture empire Art Van Furniture and the estate of late founder Art Van Elslander.
The lawsuit, filed March 7 in Delaware bankruptcy court by Chapter 7 trustee Alfred Guiliano, alleges the sale of most of Art Van’s real estate in concert with the sale of the company to the equity firm. Boston-based investment Thomas H. Lee Partners in 2017 is directly responsible for the company’s insolvency.
The family denies this allegation.
Guiliano filed the lawsuit on behalf of creditors who lost money in Art Van’s bankruptcy. The role of a bankruptcy trustee is to try to recover as much money as possible for the creditors of a bankrupt business.
The Warren-based retailer filed for an initial Chapter 11 reorganization in March 2020 before moving into a Chapter 7 liquidation a month later.
The complaint alleges real estate sales three years before the bankruptcy filing left the company without assets and sealed its eventual fate.
The lawsuit says the properties Art Van previously owned were sold for $434 million in a deal that involved leasing the property to Art Van, and 70% of the total sales were used to fund the sale to Thomas H. Lee.
“Prior to the Art Van acquisition, the company was paying less than $23 million per year in total lease obligations and had $136.5 million in total future obligations,” the complaint states. “After the Art Van acquisition, and as a direct result of the sale-leaseback transactions used to fund the bulk of avoidable transfers to defendants, obligors’ minimum lease obligations soared to nearly $46 million annually. and more than $877 million in total future operating lease obligations.”
The lawsuit says Gary and David Van Elslander, sons of the late Art Van Elslander, and former CEO Kim Yost each received “multi-million dollar” payments from estate sales.
The Van Elslander Trust received more than $529 million from the $629 million sale of the company. Art Van Elslander’s children received more than $75 million as part of the settlement, according to the complaint.
The complaint does not name Thomas H. Lee Partners and does not seek to recover funds from their role as initiator of the sales and leasebacks under the M&A agreement. Not only did the private equity firm use 70% of the proceeds from the proceeds from the sale of properties to buy Art Van, but it loaded the company with $254 million in new debt, according to the complaint.
The Van Elslander family believe Thomas H. Lee is responsible for the bankruptcy.
“Make no mistake, the bankruptcy proceedings may be labeled ‘Art Van’, but these are the consequences of business decisions made by the company that bought our family business in 2017,” the family said. in a press release. “When the company’s founder, Art Van Elslander – our father, grandfather and great-grandfather – sold Art Van Furniture as a thriving family business, the business was generating cash, debt-free The buyer promised us that decades of commitment to employees and communities would remain as strong as ever, and those promises have been broken.
“Throughout its history, Art Van’s priorities have been to pay its suppliers and employees on time, in full. It has been painful to hear the stories of employees losing their jobs and unpaid creditors. , tarnishing our family’s reputation. That’s why we bought the Art Van name from us last year – to keep it out of the hands of those who could further damage the reputation built over 58 years of business. Above all, everything what the family owns now is the name We have no ownership of what happened to the business after the March 1, 2017 sale. in order to play a part in resolving the problems caused by the purchaser of our business, particularly in the years following the sale, are an attempt to cause us to suffer losses, which we will fight in court.”
When Art Van filed for bankruptcy protection in March 2020, Crain’s reported on the chronic mismanagement of former executives alleged by Thomas H. Lee.
After its acquisition in 2017, Thomas H. Lee implemented an aggressive strategy to open 200 additional stores and double revenue to $2 billion by 2020. This included the aforementioned debt to fund follow-on acquisitions of Levin Furniture in Pittsburgh and Wolf Furniture Co. in Altoona, Pennsylvania, in separate deals, Crain’s is valued at a total of $260 million.
The bent in private equity is often to squeeze as much money as possible out of a business as quickly as possible, and using existing real estate is the quickest way to achieve the goal, Pat O ‘Keefe, CEO of Bloomfield Hills-based consultancy form O’Keefe & Associates Consulting, said Crain’s in 2020.
“Private equity saw value outside of the business in real estate owned by Art Van, who owned a number of their stores,” O’Keefe said. “They entered into a massive sale-leaseback to liquidate real estate value and recoup much of their initial investment.”