Family Christian Stores (FCS) holding company fired a salvo over the bow of the more than 30 Christian publishers and other vendors last week to protect ownership of consignment inventory the store holds while in bankruptcy.

FCS creditors also filed a separate complaint seeking a court ruling on consignment inventory ownership.

FCS denied most of the allegations in the publishers’ lawsuit headed by United Methodist Publishing House regarding inventory ownership and entered a counterclaim that except for two publishers none of the plaintiffs in the case filed correct ownership documents for consignment inventory.

FCS contends only Baker Book House Co. and Simon & Shuster Inc. filed correct UCC-1s. It also contends allegations are false that a significant number of the plaintiff vendors filed forms in Grand Rapids, MI, the former FCS corporate headquarters location, instead of Georgia, the new corporate headquarters location. The FCS complaint said only four vendors incorrectly filed in Michigan, and only Baker re-filed in Georgia.

A UCC-1 Financial Statement is a legal form creditors file as notice of interest in property a debtor might hold. The form “perfects” a creditor’s security interest through public notice, which declares the creditor has a right to take possession of property. Such forms serve to prioritize creditors’ security interest in property. How the form is completed establishes whether or not the property in question is part of secured debt.

If the court rules in FCS’s favor, most plaintiffs in the case with consignment property in FCS possession may have that property considered unsecured debt, which could affect priority standing in any mediation or payment for goods. All the parties have agreed previously to mediation, and the court will be discussing that in an upcoming hearing.

The FCS filing also says that secured lenders Credit Suisse and FC Special Funding have perfected their security interest, giving them top priority in debt mediation negotiations or court rulings. Credit Suisse is a direct lender and FC Special Funding is a separate company owned by FCS owner Richard Jackson and supplies operating funds to the chain through its own financing.

The filing also requests the court to declare that the consignment inventory FCS holds is the retailer’s inventory and to grant FCS all ownership and title to the inventory, except for the Baker and Simon & Schuster inventory.

The court ordered a status hearing on this case 10 a.m. (EST) Friday, May 15.

Creditors file complaint in main case

In a separate action last week by the Committee of Unsecured Creditors (a court-appointed group made up of FCS creditors in the main Chapter 11 bankruptcy case), the committee filed a complaint with the court seeking a declaratory judgment about ownership and interest in the inventory as well as liens, claims, protection for payment for these items, control over inventory, and how financial transactions are handled – including about $300,000 in charitable donations that were collected through existing FCS accounting procedures for the chain’s nonprofit ministry support. FCS itself became a nonprofit organization in 2012, when Jackson and a group of investors purchased the company.

The creditor committee argues that consigned inventory should be considered collateral and that FCS doesn’t own the inventory. It also argues that other secured creditors, such as FC Special Funding and Credit Suisse, don’t own it either even if their debt is considered secure debt.

The United Methodist Publishing House case and the Chapter 11 bankruptcy case are administered jointly in Michigan’s same Western District bankruptcy court.