by WILMINGTON, Del. — The trustee in the Art Van Furniture Chapter 7 liquidation proceeding is suing the children of the late Art Van Elslander, his estate, former Art Van CEO Kim Yost and 1-100 “John Does’ among others, seeking to recover more than $105 million in alleged “fraudulent transfers.”
The trustee, Alfred Giuliano, contends the defendants received more than $600 million from the 2017 acquisition (by private equity firm Thomas H. Lee Partners through an affiliate fund), many times more than the business’ total stockholder equity, and said that they did so while leaving the company mired in insurmountable debt. The suit doesn’t mention buyer Thomas H. Lee by name, but appears to hold the Van Elslander family and others responsible for payments received under the THL-structured deal.
The alleged fraudulent transfers are collectively called “avoidable transfers” in the suit and include real estate valued at more than $84.7 million owned by Art Van and another $3 million in real estate owned by Comfort Mattress, a company related to Art Van — transferred for the benefit of the Van Elslander defendants; $8 million in transfers to former executive Gary Van Elslander, at least $2.5 million in transfers to his brother David Van Elslander; and at least $7 million to Kim Yost, the former Art Van CEO who currently is president of The Dufresne Group, owner of Dufresne Retail Solutions Group, a Canadian furniture and appliance buying group.
According to the complaint, the trustee also seeks “to recover damages for numerous breaches of fiduciary duties” by Art, David and Gary Van Elslander and Yost.
Gary Van Elslander told Home News Now he’s seen the complaint and, “the facts as they are presented are really incomplete, and the intent described is totally wrong and completely misharacterized.”
“Art Van Furniture was my father’s baby,” he said. “This was his legacy. He loved the business and he loved the employees.” To suggest the family is culpable is “ludicrous” and, “It’s adding insult to the emotional injury we already suffered as the result of my father’s business going bankrupt.” He said the trustee should be looking to the buyer for culpability, noting the family was not involved in the financing of the deal. (Read Van Elslander’s and the family’s full statement here.)
“For more than 50 years, Art Van and its related companies were a successful and profitable family-owned and operated Midwest furniture retailer,” the court document said. “That all changed in 2017 when the (Van Elslander) defendants decided to sell the business for approximately $620 million.”
The suit said the transaction was highly leveraged, something accomplished by “stripping the value out of the debtors’ owned real estate properties and saddling the debtors with an unsustainable debt load for the benefit of the defendants and to the detriment of the debtors and their creditors.”
The trustee contended that prior to the acquisition — which occurred three years before the Warren, Mich.-based Top 100 company’s collapse into Chapter 11 bankruptcy and ultimately Chapter 7 liquidation — the retailer had no material secured debts. Art Van’s owned real estate properties were acquired by third party leasing companies as part of four sale-leaseback transactions entered into by the buyer to finance about 70% of the purchase price paid to the Van Elslander defendants, the suit said.
“The debtors received none of the consideration for the properties,” the document said, bolding and underlining the word “none.” “Instead, the debtors had to pay significant new rent obligations for the property they previously owned free and clear.”
Before the acquisition, the retailer paid less than $23 million a year in lease obligations and had $136.5 million in total future lease obligations, the trustee said. After the deal, that ballooned to nearly $46 million and more than $877 million, respectively, according to the papers.
The buyer, it added, also borrowed heavily to finance the purchase. Much of some $254 million in new debt obligations carried high interest rates, it said.
As a result, Art Van ended up obligated to pay about $33.4 million a year in interest expense and lease obligations, which exceeded the average net earnings of the business even its highest net earnings year.
“Put simply, defendants took more than they were entitled to and they left behind a business that had been rendered insolvent, had unreasonably small capital in relation to its business and the transaction, and had incurred debts beyond its ability to pay as they became due.”
The fiduciary defendants Art, Gary and David Van Elslander and Yost — “ignored red flags and put their own self-interest and the interests of the other defendants ahead of the best interests of the debtors,” it said, citing the example of the sale-leaseback transactions, which the Van Elslanders knew about and “signed off on closing statements showing the properties were being stripped out and sold to third parties.”
The suit said the Archie A. Van Elslander Trust received more than $529 million from the sales, and entities controlled by Van Elslander’s children received more than $75 million. “Gary, David and Yost each received multi-million dollar avoidable transfers,” it said. “By contrast, the debtors were left with just $2 million in cash.
Seven months after the acquisition closed, Art Van and related debtors had lost more than $22.5 million. “Two years later, the debtors’ total losses had reached nearly $189 million. Months later, the bankruptcy filings followed and creditors were left holding hundreds of millions of dollars in unpaid claims.”
After the acquisition, Gary Van Elslander and Yost remained directors and/or officers and “committed additional breaches of duty,” the suit alleges, including “failing to address the massive debt and lease obligations” arising from the sale, and later approving Art Van’s “ill-conceived acquisitions of Levin Furniture and Wolf Furniture.”
By including 1-100 John Does as plaintiffs in the suit in addition to the named parties, the complaint could open the door to claw backs from other parties not named as family members and related trusts and fiduciary executives.
The trustee filed the suit Monday. A response had yet to be posted to the docket as of Thursday.
