Grocery chain's future in doubt Farm Fresh creditors allege check-kiting, file bankruptcy petition

November 20, 1995|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF Sun staff writers Joan Jacobson and Michael Ollove contributed to this article.

In an alleged check-kiting scheme involving more than $1 million, Farm Fresh Supermarkets of Maryland Inc. has lost its line of credit, been forced into U.S. Bankruptcy Court by creditors and lost control of the 10-store chain to a court-appointed trustee, according to court documents obtained yesterday by The Sun.

The grocery retailer plunged into turmoil when "senior management" at Farm Fresh "resigned after a check-kiting scheme was discovered that resulted in more than $1 million in checks to vendors being dishonored," according to a petition filed in U.S. Bankruptcy Court by three creditors, including B. Green & Co. Inc., which is a 49 percent shareholder in Farm

Fresh.

Jack Millman, the supermarket's principal owner, could not be reached for comment. A man answering his phone said: "Look, he's not in. Get off the phone."

Bill Carter, Mr. Millman's son-in-law who reportedly runs the company day to day, could not be reached for comment.

Joel Sher, the attorney for the trustee, said: "Once this is in place, then we'll begin our investigation." Last night, with the bankruptcy petition pending, Mr. Sher was preparing to meet with U.S. Bankruptcy Court Judge James F. Schneider to seek approval of a $1 million line of credit for Farm Fresh. He was not sure when the meeting would take place.

Mr. Sher said that the company intends to continue operating, a move that would stave off the elimination of more than 600 jobs.

Events began to unravel early last week when Signet Bank cut off the chain's line of credit.

Then on Friday, three creditors -- B. Green & Co., Browning-Ferris Inc. and Schmidt Baking Co. -- filed an involuntary petition in U.S. Bankruptcy Court to order the Chapter 7 liquidation of Farm Fresh, alleging that the company was not paying its debts on time, that its vendors had stopped supplying groceries and that senior management was involved in a check-kiting scheme. Under Chapter 7 liquidation, all Farm Fresh assets would be sold to pay creditors.

After Friday's hearing, Judge Schneider directed the appointment of an interim trustee -- Terry Musika of the Baltimore accounting firm C. W. Amos & Co. -- to take over operation of the supermarkets.

Details of the alleged check-kiting scheme -- when checks that will bounce are written in order to obtain credit or money, or funds are improperly shifted from one account to another -- remained unclear yesterday. Federal agents, who would typically handle such a case involving a federal bank, have not taken any action, a source said.

"We have no intention to close any of the stores," Mr. Sher said. "We have an [pending] arrangement to get a million-dollar line of credit to operate during an interim period. The court will determine at a later date whether to officially place [Farm Fresh] into bankruptcy."

But word of a looming shutdown already has spread among grocery employees and shoppers.

The Farm Fresh in Greenspring Shopping Center in Pikesville was unusually crowded, customers said, with many talking about the prospects of the store closing. Philip Moffet, the supermarket's manager, said the store will be open today, but company officials have told him that plans are "day to day."

Employees at other stores in Baltimore and Baltimore County said they had heard the same uncertain pronouncement.

"We're open as of now," said one.

"We don't know what's going to be happening," said another.

A third employee said yesterday that the stores could be closed that night, or as early as today. None would allow their names to be used for fear of losing their jobs.

Yesterday's disclosure of Farm Fresh's precarious situation did not catch industry analysts entirely off guard.

"There were changes afloat," said Jeff Metzger, publisher of Food World, a Columbia-based regional supermarket trade paper. He said that B. Green already had sued Farm Fresh, and its majority owner, Mr. Millman, alleging that they had refused to provide financial information or to hold directors' meetings in a timely fashion.

And the privately held company, which is believed to generate about $100 million in annual sales, was showing signs of problems.

"They've been closing stores over the last several years because of declining sales," Mr. Metzger said.

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