Judge OKs temporary financing for Farm Fresh Richfood advance allows chain to continue operating

November 21, 1995|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

In a desperate attempt to save over 600 jobs and keep Farm Fresh Supermarkets of Maryland Inc. afloat, U.S. Bankruptcy Court Judge James F. Schneider held court with a handful of attorneys in his home late Sunday night, signing orders that were entered yesterday, temporarily approving $1.25 million in financing for the Baltimore-based chain.

Richfood Inc., the giant Richmond, Va.-based food wholesaler, agreed to advance Farm Fresh up to $1 million in grocery supplies and lend a maximum of $250,000 for payroll and other working capital needs, according to court documents filed yesterday.

The 11th-hour financing will allow Farm Fresh to continue operating its 10 stores in Baltimore and Baltimore County and paying its employees -- at least until Dec. 5, when the court will hold a hearing to finalize the agreement.

In other developments, sources said yesterday that two top executives of Farm Fresh resigned within hours after an alleged check-kiting scheme was discovered earlier this week, pushing the Baltimore-based chain to the brink of bankruptcy.

The imbroglio was triggered early last week, sources said, when attorneys for Farm Fresh approached Signet Bank, the grocer's senior secured lender, with a problem: Alleged check-kiting by Farm Fresh in which checks were written without the funds to cover them. Working with the bank, Farm Fresh authorized a stop-payment on outstanding checks.

Sudden resignations

On Wednesday, sources said, two Farm Fresh executives -- Bill Carter and Steve Cohen, both sons-in-law of the company's founder and principal owner, Jack Millman -- announced their resignation effective the next day, Thursday, in a fax addressed to store managers and employees.

Mr. Cohen said, "I have no comment on that." Mr. Carter could not be reached for comment yesterday.

Mr. Millman, 70, said he has not been involved in Farm Fresh's daily operations for nearly three years. "I'm about as confused as one person can be," he said of the rapidly unfolding controversy. He called it "painful."

By 5 p.m. Friday, the company was forced into Chapter 7 bankruptcy proceedings by three creditors, including local wholesaler B. Green & Co., which owns a 49 percent stake in privately held Farm Fresh.

Creditor's allegations

In court filings, B. Green alleged that Farm Fresh was not paying its debts, that vendors had stopped supplying groceries and that the retailer's senior management "resigned after a check-kiting scheme was discovered which resulted in over $1 million in checks to vendors being dishonored."

By 10:06 p.m. Sunday, Farm Fresh's emergency credit from Richfood was in the judge's hands.

Richard L. Wasserman, a local attorney representing Richfood, and Daniel R. Schnur, the Richmond wholesaler's senior vice president and general counsel, could not be reached for comment.

No criminal investigation, to date, has been launched against any Farm Fresh employees in connection with the alleged check-kiting scheme, according to sources. But attorney Michael Colglazier, representing Signet Bank, said that after an internal inquiry is conducted, "Signet will make a determination if any regulatory disclosures are required."

B. Green had already sued Farm Fresh and its majority owner, Mr. Millman, claiming they had refused to provide financial information or hold board meetings in a timely fashion.

Board replaced

In another development, Terry L. Musika, Farm Fresh's court-appointed trustee who is now running the company, removed the board of directors of its subsidiary, Beckenheimer's Inc., court records show. The newly appointed directors on Sunday filed a voluntary petition to liquidate under Chapter 7 bankruptcy.

Judge Schneider also approved a motion to consolidate the cases of Farm Fresh and its subsidiary. Mr. Musika, the trustee, could not be reached for comment yesterday. According to court documents, Farm Fresh and Beckenheimer's maintain the same bank accounts and employees, and pay all operating expenses from those accounts.

Mr. Millman built Farm Fresh, a hybrid of urban and working-class supermarkets, in the early 1980s with the acquisition of stores previously run by grocery chains felled by bankruptcy, according to Jeff Metzger, publisher of Food World, a Columbia-based regional supermarket trade paper. Farm Fresh expanded in the late '80s, he said, with the acquisition of several groceries known as Big B supermarkets, which had been owned by B. Green.

Although analysts had speculated Farm Fresh might shed its weaker stores, Mr. Metzger said, few could have foreseen a potential Chapter 7 liquidation. Some creditors are still hopeful that the case can be converted into a Chapter 11 proceeding, under which the chain would continue operating as it develops a reorganization plan.

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