Southern Season has decided not to revamp its online store or open new stores in Wilmington and Southern Pines while the Chapel Hill company is in bankruptcy.
At a hearing last week, one of Southern Season’s lawyers, J.P. Cournoyer, told the court that the company would modify its business plan based on objections from its creditors. The company had billed the new e-commerce website and those stores as ways to better position itself for the future.
Cournoyer also said the company planned to give up its executive office space on Europa Drive and move those offices back to the second floor of its flagship Chapel Hill store.
At the hearing, U.S. Bankruptcy Judge Benjamin A. Kahn also approved $650,000 in interim financing to sustain the company until an Aug. 18 hearing. So far, the company has received $1.4 million in loans since it filed for bankruptcy in late June; the company hopes to reorganize and emerge from bankruptcy by December.
Despite cutting those expenses and securing additional funds, the company faces increasing pressure from its largest creditor, which wants to see Southern Season sold.
Lawyer Chris Schueller represents Summit Bridge, an investment firm that Southern Season owes $4.4 million in secured debt. At the hearing, Schueller said Summit Bridge would not consent to additional operating funds after Aug. 18 unless Southern Season agrees to what is called a “363 sale,” where the company would be sold to another entity to run it.
The gourmet food and kitchenwares store started in 1975 and became a $30 million retail business and anchor tenant at Chapel Hill’s University Place mall. The company was bought in 2011 by TC Capital Fund, a company led by Chapel Hill entrepreneur Clay Hamner, who became the company’s CEO. Hamner tried to replicate the success of the Chapel Hill store with its restaurant and cooking school but instead had to close large stores in South Carolina and Virginia earlier this year.
The bankruptcy filing shows that Southern Season has $9.8 million in assets, including $3.6 million in inventory, and $18.3 million in liabilities. Those liabilities include $4.6 million owed to creditors whose debt is secured by property and $13.7 million in unsecured claims. Southern Season’s Chapel Hill store is still open, and the company operates three smaller Taste of Southern Season stores in Raleigh, Asheville and Charleston, S.C.
At the hearing, Schueller raised concerns about the company’s strategy and transparency.
“We believe that the parties in this case are embarked on a high-risk strategy for a recovery,” said Schueller, who said Southern Season didn’t have enough cash on hand when it filed for bankruptcy to pay its bills for three weeks. “You have a debtor running on fumes and that’s very dangerous.”
We believe that the parties in this case are embarked on a high-risk strategy for a recovery. You have a debtor running on fumes and that’s very dangerous.
Chris Schueller, lawyer for Summit Bridge, Southern Season’s largest secured creditor
Schueller had earlier raised concerns about Southern Season getting its $1.4 million in loans to operate from some of the original investors who purchased Southern Season in 2011. He also questioned how Hamner, as an investor and manager of Southern Season, could negotiate a loan with Silk Route Capital Corp. in which he also has a role. Lawyers at last week’s hearing told the judge that Hamner no longer has any role with Silk Route.
At last week’s hearing, Schueller complained about the company’s lack of transparency, saying Southern Season hasn’t shared documents about Silk Route’s loan, didn’t quickly share names of Silk Route investors and hasn’t explained potential insider relationships between its investors and its landlords at the company’s corporate office and distribution center.
“We need transparency,” Schueller said. “We shouldn’t be pulling teeth to get this information about insider transactions.”