APPCO bankruptcy case nears completion
By Jeff KeelingPress Business Editor
jkeeling@johnsoncitypress.com
Local businesses left hanging by last year’s APPCO convenience store bankruptcy number in the dozens, and it looks like they’ll be fortunate to get more than 10 cents for every dollar they were owed.
The final bits of the APPCO Chapter 11 case — including partial payment to unsecured creditors owed around $8 million — could be wrapped up within months, said Andy Weber, the case’s chief restructuring officer.
Judge Marcia Parsons has accepted the “liquidation plan” to resolve the estate, and now Weber has to discover just how much more money he can find from two potential sources: a common bankruptcy issue called “preference claims” and a lawsuit against Titan Global Holdings, the company that bought APPCO in September 2007. If those sources provide more than enough to pay “administrative claims” from lawyers and others, the remainder should increase the amount paid out to unsecured creditors — who are at the bottom of the food chain when it comes to bankruptcy cases.
APPCO filed for bankruptcy on Feb. 9, 2009, Weber was appointed in April, and last September, nearly 50 stores were sold to Florida Sunshine Investments, a company backed by Florida businessman Jeff Greene. “Sunshine Energy” now owns and operates the APPCO stores, and is not liable for any of the problems from the bankruptcy.
As it stands, unsecured creditors, who range from grocery and gas suppliers to small businesses that provided a variety of services to APPCO, can expect around 8 percent of the nearly $8 million they’re owed. Most unpaid debts to those creditors occurred in late 2008 and early 2009, when APPCO was in serious financial trouble leading up to its bankruptcy.
Local, regional and national businesses large and small could see checks well before the end of the year, Weber said. The $4,608 APPCO owed Cartridge World when it filed for bankruptcy, for instance, is unlikely to result in more than a $500 check. The loss will be bigger for local accounting firm Blackburn, Childers and Steagall, which was owed more than $23,000 when APPCO came under bankruptcy protection.
During the bankruptcy case, lawyers for the unsecured creditors committee engineered a deal that provided a small percentage of proceeds, totaling $304,000, from APPCO’s sale. Most of the sale proceeds went to Greystone Business Credit, which loaned Titan Global Holdings the money used to purchase APPCO.
The unsecured creditors committee’s lawyers also secured $725,000 from an escrow fund that was to go to APPCO’s original owners, principally Jim MacLean. Out of the $1,030,000, the committee’s lawyers and financial advisors took $270,000 for expenses, and the attorneys have applied for another $123,000, which would leave $675,000, according to the liquidation plan.
In July, though, APPCO’s estate sued Titan Global Holdings, alleging that nearly $5 million transferred from APPCO’s revenues to Titan shouldn’t have been, and should be returned to the estate. The liquidation plan says that suit could be settled in a way that would bring at least some money to the estate.
Additionally, APPCO is pursuing “preference claims” against vendors that APPCO was paying its bills to at the same time it was blowing off bills from little guys like Cartridge World and BCS. Preference claims involve payments made by a business within 90 days of its bankruptcy filling that “were out of the ordinary course of business.”
If, for instance, APPCO paid a big oil company because it knew not paying would have imperiled its ability to stay open, but wasn’t paying a coffee vendor or beer distributor at the same time, the bankruptcy estate can try to get those payments — if they occurred within that 90-day period — back from the big oil company.
Typically, such claims are settled out of court for a fraction of their amount, as the vendors involved often have some defenses against them.
When all that collecting is said and done, the liquidation plan states, it should be enough to pay for leftover administrative claims, which aren’t expected to exceed $500,000.
If the total collected through the Titan suit and preference claims exceeds that, the Krispy Kremes ($7,530), Holston Distributings ($7,962), Tri-Cities Beverage Corporations ($28,176) and the like could see their checks get just a little bigger.
Losing most of what a bankrupt customer owed you is by no means unusual. Greystone, the secured creditor, lost about 40 cents on the dollar itself.
According to the Turnaround Management Association, a survey showed that unsecured creditors in Chapter 11 cases often come away with just pennies on the dollar.
“Only about one in five (19 percent) expect a recovery rate of 50 percent or more, and about one in three (29 percent) expect 25 percent or more,” the TMA article stated. “Respondents estimated that only 7 percent received at least 50 percent of their claim in the end, and about one in five (21 percent) realized 25 percent or more. “
A 12.5 percent recovery for unsecured creditors would require the preference claims and Titan suit to bring in about $400,000 over the administrative claims.
The liquidation plan, the work largely of Weber and Mark Dessauer, implies that the eventual outcome would beat the alternative, a Chapter 7 liquidation.
“The Plan’s primary objectives are to liquidate the assets of the Debtor in a fashion that maximizes recovery to all creditors,” the plan states. “APPCO believes that holders of Allowed Claims will obtain a greater recovery from this estate through the Plan than if its assets were liquidated under Chapter 7 of the Bankruptcy Code.”