Representatives of Vann’s Inc. are scheduled to appear in U.S. Bankruptcy Court on Tuesday after the Missoula-based electronics and appliance company filed for Chapter 11 protection Sunday.
The filing came just weeks after Vann’s lost a major line of credit. In June, the company brought in an outside chief executive officer who specializes in the reorganization of struggling businesses.
Jerry McConnell said Monday bad investment choices, along with the troubled economy, high operating costs and deteriorating online sales revenues made the bankruptcy filing necessary.
The Chapter 11 filing was submitted to the U.S. Bankruptcy Court for the District of Montana on Sunday. If approved, the petition will allow the company to continue operating as it reorganizes its finances, said McConnell, who took over as Vann’s CEO in mid-June.
The majority of Vann’s 162 employees will keep their jobs as the bankruptcy proceeds.
“It’s business as usual at all locations at this point, and it will remain that way,” McConnell said.
The company’s Chapter 11 petition says it has 1,000 to 5,000 creditors; its estimated liabilities are between $10 million and $50 million.
Vann’s lists more than $17 million in company assets in the petition, including nearly $12 million worth of inventory at its Brooks Street location.
“It’s an unusual bankruptcy filing because we have more assets than liabilities,” McConnell said. “It’s just a matter of some bad investment choices they made. We’re going to rectify that.”
McConnell and attorneys for several creditors will be in Butte on Tuesday for the first orders hearing on the petition.
Motions have been filed to allow Vann’s to do things such as use existing bank accounts and to maintain existing cash management practices.
If the Chapter 11 petition is approved, “everything you do now has to be approved by the court” – from paying vendors to taking money from customers, McConnell said.
GE Capital Solutions informed Vann’s in June it would terminate its financing of inventory purchases unless Vann’s met certain conditions. Vann’s offered to set a weekly budget and engage in a restructuring process for the line of credit from GE. Vann’s also began negotiating with First Interstate Bank to secure more credit.
“You have to have funds to run on during the bankruptcy process. We proposed a deal that would have involved GE Capital and First Interstate. We thought we had a deal, but two days later GE backed out,” McConnell said.
That led to the Chapter 11 filing, McConnell said.
First Interstate Bank “stepped up big time,” and will provide some financing so that Vann’s can “survive and recover” during the bankruptcy process, McConnell said.
First Interstate is listed in the filing as a creditor holding $4.1 million worth of secured claims, including one contracted on July 19 for $79,796.
While the company’s five retail stores and its online site Vanns.com will be largely unaffected at this time, it’s side ventures, including the ON specialty electronics store in Southgate Mall and the online outdoor gear site BigSkyCountry.com, are facing major changes.
Big Sky is a venture “we probably never should have been in,” McConnell said.
If that business cannot be sold, its assets will be liquidated. Two employees will stay on during that process, and one may be offered another job within Vann’s afterward, McConnell said.
Vann’s will continue to operate the ON store through the holiday season, then will re-evaluate it, McConnell said.
The bankruptcy process could take anywhere from six months to a year, he said. As that process proceeds, the company will attempt to sell off back inventory and hold “spring cleaning” sales at its retail locations across the state to right the ship, McConnell said.
Vann’s was founded in Missoula in 1961 by Pete Vann as an appliance store. Vann sold the company to the employees in 2005.
McConnell took over for former Vann’s CEO George Manlove in mid-June.
McConnell’s consulting business, PSS Consulting Inc., has led him to work with companies across the country during the past 25 years. Recently, McConnell’s work included helping Ronan-based Jore Corp. out of bankruptcy. He also served as president of Missoula’s Spectrum Products LLC, guiding it through some “issues” until it was sold in January.
Reporter Jenna Cederberg can be reached at 523-5241 or at email@example.com.