State May Act to Block Sale at Furnishings 2000
State officials on Thursday were considering taking legal action to block a liquidation sale that Furnishings 2000 hopes to stage in order to raise cash needed to pay off creditors.
A federal bankruptcy judge in New York earlier this month approved the proposed sale, but the state Department of Consumer Affairs raised questions about the three-month sale that is scheduled to start Saturday at 22 of Furnishings 2000’s stores in California.
The sale is being managed by the court-appointed creditors committee of Mira Loma-based Furnishings 2000, which entered bankruptcy proceedings in September in New York City. The bankruptcy judge also authorized the committee to spend up to $18.5 million to buy additional furniture that would make the sale more attractive to shoppers.
Gordon Damont, chief of the home furnishings bureau in the state Department of Consumer Affairs, asked the attorney general’s office Thursday to determine if the creditors committee is violating state law by spending the $18.5 million for furniture and appliances that would be sold alongside the chain’s existing inventory.
“If you announce a liquidation sale, you’re restricted (by state law) to the merchandise which is on hand or that had been previously ordered,” Damont said. “You can’t order merchandise just to keep the sale going . . . that would be in violation of state law.”
However, Herschel Elkins, senior assistant attorney general, said that the bankruptcy order issued earlier this month in New York evidently gives Furnishings 2000 wide latitude when it comes to complying with state and local laws.
“Clearly the sale (as proposed) violates the California law,” Elkins said. “But the question is whether the New York bankruptcy court specifically said they can run a scam sale and violate California law to benefit creditors and say to hell with consumers.”
After a “brief examination” of the U.S. Bankruptcy Court order, Elkin said the order “appears to say that you can violate anything, cheat as many people as you can as quickly as you can.” Elkins said a decision on a legal challenge will be made today.
A spokesman for the creditors committee was not available for comment Thursday.
The creditors committee hopes to generate $40 million in gross revenue during the 90-day sale, after which the chain’s Southern California stores would be closed. Furnishings 2000 owes $20 million to $30 million to its creditors, including $1.2 million that is owed to customers who ordered, but never received, furniture.
In the weeks following Furnishings 2000’s bankruptcy filing, the state Department of Consumer Affairs was deluged with “hundreds of calls” from disgruntled buyers, Damont said.”Some consumers had paid $5,000 or $6,000 to Furnishings 2000 before it went into bankruptcy,” Damont said.
The creditors committee is sending letters to Furnishings 2000 customers who have ordered, but not yet received, merchandise. The creditors committee is directing customers who don’t receive letters to company representatives who will be at the 22 stores that are to reopen on Saturday.
