Lenders to United Furniture Industries claimed in court filings they were blindsided by the company’s pre-Thanksgiving move to abruptly fire its 2,700 employees in the middle of the night — revealing for the first time a bizarre sequence of events that triggered the surprise bloodbath.
The Nov. 21 layoffs — in which workers learned they were losing their jobs through a late-night blast of email and text messages — took place just hours after the Mississippi-based company allegedly demanded “substantial capital immediately” from its lender Wells Fargo, signaling that it couldn’t continue operations without the cash, creditors claimed in a court filing late last week.
Wells Fargo — along with two other creditors is asking a US bankruptcy judge to force United Furniture into a Chapter 7 liquidation — balked at the request “on such short notice” and “without additional information” the bank would require, such as a restructuring budget and approval from its internal credit committee, according to court papers.
Wells Fargo claims in the court petition it is now owed more than $99 million. It didn’t specify the amount requested, but said it was “over and above” what its credit facility allowed, which had been approved last summer for $130 million secured by the company’s assets.
Later that day, UFI’s management allegedly told Wells Fargo that it would “immediately cease operations and lay off all of its employees effective immediately,” according to the Dec. 31 court filing. In the process, the company allegedly “completely abandoned” all of its properties, leaving all of its 15 facilities without security and without insurance coverage after Nov. 30, according to the filing.
Some landlords locked up their facilities and denied access to anyone, according to court papers.
When Wells Fargo reached out to UFI, it was told that all of the company’s officers had resigned with the exception of the CEO and CFO. A day later, they too resigned, according to the filing.
Looking to rein in the chaos, Wells Fargo said it hired a crisis-management firm called Focus Management Group to secure UFI’s properties and begin an orderly liquidation. Nevertheless, the process has become “overwhelming” as other creditors have swarmed in to make claims, according to court papers.
“Wells Fargo has no duties to such creditors and has been required to proceed on an ad hoc basis without having the benefit of the institutional knowledge of the 2,700 former employees of UFI to address these claims,” the bank griped in the filing.
As of the court filing over the weekend, the creditors said UFI appears to have “no employees, management or officers.” All that is left, the filing said, is a board led by UFI’s owner and chairman, David Belford, who owns 90% of the company.
Belford, a wealthy Ohio businessman who remained silent for three weeks following the layoffs, finally addressed the disaster in an interview with a Columbus newspaper, calling himself “a passive investor” and adding that his “insight into the company’s finances was limited.”
“Only very recently did I learn just how dire the situation had become, how limited the company’s options were,” he told Columbus Business First on Dec. 12. “Unfortunately, the reality of UFI’s circumstances was brought to the board’s attention far too late.”
UFI’s former president and board member, Larry George — who is also listed as a board member in the Dec. 31 filing — disputed the filing’s claim that he is a 5% shareholder, as well as Belford’s description of himself as a “passive investor.”
Belford “was always pretty aware of the what was going on,” said George, who said he co-founded the company and was its president until 2020 and a director until June 2022.
“We had board meetings every quarter and we’d meet once a month to discuss the financials,” George said. “David either attended the monthly board meetings in person or via conference calls.”
Doug Hanby, also listed in the filing as a board member, also disputed the filing’s claim that he was still on the board and that he owned a 5% stake in the company, saying he also exited last summer.
Wells Fargo said it drew its information from loan documents.
Less than 5% of companies that file for bankruptcy do so unwillingly or at the behest of their creditors, according to distressed debt expert, Adam Stein-Sapir.
“If the case proceeds on an involuntary basis it makes the company look culpable and puts it in a worse light,” Stein-Sapir said.
“The idea of the collateral being abandoned by the debtor is shocking,” bankruptcy attorney Kenneth Rosen added. “It’s remarkable that a debtor in such severe distress would not have been coordinating with its senior lender, long in advance before a shutdown.”
UFI and Belford did not return calls for comment.