Judge rejects another Family Christian Stores bankruptcy plan

A judge said Friday that a Family Christian Stores executive acted inappropriately during a bankruptcy auction and rejected the company’s plan to buy itself out.

“The sale process … has been prolonged, controversial, and contested,” bankruptcy Judge John Gregg wrote in a 48-page opinion. Family Christian Stores (FCS) entered Chapter 11 bankruptcy earlier this year with more than $100 million in debt. In May, it held an auction and accepted a buy-out bid from a sister company, FC Acquisition, that would have allowed it to keep most of its stores open. Several other bids came from liquidation companies.

Gregg ruled the auction process was tainted by the insider relationship between CEO Chuck Bengochea and Richard Jackson, board president of the umbrella company that owns both FCS and FC Acquisition. Bengochea called Jackson during the auction to ask him to increase FC Acquisition’s bid.

“The request should have been made to all qualified bidders, not simply to an insider that has assured the debtors’ CEO of future employment,” Gregg wrote. He called Bengochea’s actions a mistake that did not constitute fraud or unfairness but did, along with several other issues, warrant rejection of the sale.

The judge gave FCS permission to reopen the auction and correct the mistakes it had made earlier. But time is running short for the company—Gregg said the company’s cash reserves likely would be depleted by mid- to late-July.

A spokesperson for Family Christian Stores declined to comment for this story. The company has previously stated it would not comment on its business operations until the bankruptcy process was complete.