Trustee: Firm had ‘toxic’ managing
The trustee overseeing the bankruptcy of Houston-based Parker School Uniforms alleges in a new lawsuit filed in San Antonio that management of the company was a “disaster.”
Former company officials are accused of putting their own interests ahead of the company, leading to its bankruptcy liquidation in January.
“The toxic atmosphere resulted in numerous grossly negligent decisions that combined to cause the swift downfall of PSU,” Chapter 7 trustee Jeoffrey Burtch alleges in the lawsuit.
A last-ditch effort to avoid bankruptcy by selling the business to Lands’ End fell through in December over concerns about the value of Parker’s inventory, Burtch adds. He couldn’t immediately be reached for comment Friday.
Named in the suit are former Parker CEO Troy Pike and CFO Don Van Der Wiel of Houston, vice president of sales Allison Balthrope of San Antonio, and directors Lane Wiggers and Matthew Erbe of Pennsylvania. Efforts to reach them were unsuccessful.
The action was filed Wednesday in Bexar County District Court. The defendants have yet to file responses to the suit.
The 87-year-old Parker School Uniforms unexpectedly shut down during the first week of January. Its collapse cost 320 employees in Texas their jobs. It was a large provider of school uniforms to private and charter schools in Texas and other Sunbelt states.
The retailer listed about $21.7 million in assets and $31.6 million in debts at the time of the bankruptcy filing. The bankruptcy was filed in Delaware.
The business was acquired in 2015 by three investment firms: Argosy Private Equity, Salem Investment Partners and Plexus Capital.
Parker was “torn between
factions” and the relationship between Pike and Van Der Wiel “deteriorated to the point where each was pushing their own agenda at the expense” of the company, the suit says.
Replacing Parker’s enterprise resource planning system on the eve of the 2017 selling season was perhaps the most egregious of all negligent moves made by management, Burtch alleges in the suit. The new system was “predictably an abject failure.”
“The inability to accurately and timely supply customers with product was a key component of PSU’s ultimate demise.”
Burtch also criticized management’s decision to pursue a brick-and-mortar business model at a time when the industry was moving to a less expensive online platform. Management also “pushed massive growth” when the company did not have the means to support it, according to the suit.
Directors Erbe and Wiggers forced out experienced leadership and brought in a new CEO with no experience in the school uniform business, the suit says.
Parker’s “final death knell” was the negligent valuation of its inventory, the suit alleges. A substantial portion of the inventory was “obsolete” but was kept on the books far in excess of its real value, the suit says.
The inflated inventory made Parker’s financial picture look far better than it really was, allowing it to take on more debt than it should have, the suit adds. The inventory was valued at more than $19 million in a bankruptcy filing.
The inventory should never have been an issue because Parker had hired the accounting firm Dixon Hughes Goodman to conduct an independent audit, according to the suit.
Dixon Hughes, which also is named as a defendant in the lawsuit, is accused of staffing the job with “inexperienced auditors who lacked the expertise to properly value” the inventory.
As a result, the suit says, a sale of of the business to Lands End fell through because it “lacked confidence in the value” placed on the inventory.
Jonathan Wilke, managing partner in Dixon Hughes’ Fort Worth, said he had not seen the lawsuit and declined to comment.
Burtch is suing the officers and directors for breach of fiduciary duties. He is suing Dixon Hughes for accounting malpractice, breach of contract and aiding and abetting the breach of fiduciary duties. He does not specify how much he seeks in damages.