Equity Committee Appointed in Hancock Fabrics Case
On May 22, 2007, United States Trustee Kelly Beudin Stapleton appointed an Official Committee of Equity Security Holders in the Hancock Fabrics, Inc. case (07-10353 (BLS)). The members of the committee are Berg & Berg Enterprises LLC of Cupertino, California, Trellus Management of New York and Warren B. Kanders of Stamford, Connecticut. Sonnenschein Nath & Rosenthal of New York and Morris Nichols Arsht & Tunnell LLP of Wilmington, Delaware will serve as counsel to the equity committee.
As described in Hancock’s declaration in support of their first day motions, Hancock entered bankruptcy in large part because of a tightening in credit brought on by the debtor’s failure to make timely SEC filings. This failure was mainly caused by a change in the manner in which Hancock audits its inventory. Hancock formerly accounted for the value of its fabric stocks by weighing their inventory, but finding that there were potential inaccuracies in that method, Hancock changed its methods of calculating inventory value, creating significant delays in making its 2005 and 2006 SEC filings.
Although trade credit tightened, and the debtor’s secured lender defaulted Hancock, principally because of its failure timely to make its SEC filings, indications are that Hancock is a relatively healthy enterprise. During the fourteen months preceding Hancock’s bankruptcy filing, it improved its position by closing approximately 10% of its stores nationwide. An additional 134 stores are closing, and inventory liquidated, as part of the bankruptcy process. Perhaps the appointment of an equity committee is a sign that equity holders may realize some recovery in this case.
Although trade credit tightened, and the debtor’s secured lender defaulted Hancock, principally because of its failure timely to make its SEC filings, indications are that Hancock is a relatively healthy enterprise. During the fourteen months preceding Hancock’s bankruptcy filing, it improved its position by closing approximately 10% of its stores nationwide. An additional 134 stores are closing, and inventory liquidated, as part of the bankruptcy process. Perhaps the appointment of an equity committee is a sign that equity holders may realize some recovery in this case.
