A federal court today sought to limit the breakup fees to be paid for a proposed sale of the bankrupt Hardwick Clothes Inc., in Cleveland, Tenn., to less than a third of what had been proposed, delaying and potentially threatening a $2 million deal to save America's oldest men's suite maker.
Cleveland millionaire Allan Jones, owner of the Cleveland payday lender Check Into Cash, has proposed to buy the assets of Hardwick Clothes next month to help revive the apparel maker and its 220 employees. But a top financial advisor to Jones, Joe Mason, said the buyers want to hire a new CEO before the sale is completed. To get a new CEO in place and perform other due diligence prior to the sale of the business will likely cost more than $312,000, which the buyer wants Hardwick to pay if another buyer ends up acquiring the company assets.
U.S. Bankruptcy Court Judge Shelly Rucker said such a breakup fee is far above what is usually allowed. Jones is seeking to recover the costs of an executive search firm and a $100,000 severance pay expected to be paid any executive that leaves another company to head Hardwick - fees that are rarely, if ever, paid as a part of bankruptcy costs.
Rucker set a hearing at 10 a.m. next Tuesday in the bankruptcy court in Chattanooga after creditors and the trustee for the company were unable to work out the dispute over the breakup fees. The largest creditor of Hardwick -- the federal government agency that assumed Hardwick's underfunded pension plan, the Pension Benefit Guaranty Corp. - objected to the size of the break up fees.
Attorneys for the PBGC also wanted more time to market the Cleveland clothing company, which is one of the few remaining U.S. makers of men's clothes. PBGC also pressed company leaders is they had considered liquidating the company to generate more funds for creditors.
Tommy Hopper, the 5th generation CEO of Hardwick, said today he had reached out to competitors in the industry but none seemed interested in buying Hardwick. He said selling inventory and the plant at auction "would probably get only 20 cents on the dollar" of what such assets are listed as in the company books.
Jones said he wants to buy Hardwick to help Cleveland and the employees of Hardwick. He said he hopes with the right leadership and additional capital, Hardwick could regain some of the business it has lost over the past 25 years since its peak with 900 employees in the early 1980s.
Hardwick Clothes was founded in 1880 and has remained in the Hardwick family ever since. The company filed for bankruptcy in December after it was unable to make payments to the PBGC for its past pension obligations.