BIRMINGHAM, Ala. (CN) - Two thousand people lost their jobs and a furniture company went out of business, saddled with millions of dollars of unpaid debt, after Meadowcraft's directors juggled the books, Wells Fargo Bank and other creditors claim in Jefferson County Court.
Wells Fargo claims five company directors and one aider and abettor saddled Meadowcraft with $20 million in debt, which the company never could have borrowed "had the company not misstated its financial information." The bank claims company directors and officers created false invoices to get the loans, "which ultimately led to the company's financial death spiral and liquidation."
Meadowcraft manufactured outdoor furniture and sold it through Home Depot, Target and Sam's Club. It had offices throughout Alabama, but when management decided to consolidate the Birmingham and Wadley offices, the merger was "grossly mishandled ... productivity plummeted" and the company was unable to fill customer orders, according to the complaint.
"Despite the disastrous consolidation, Meadowcraft's core business was viable, and it could have weather the financial storm had management and the board of directors developed and implemented a viable restructuring program," the complaint states. Instead, senior management set out on a course of painting a picture of financial health while simultaneously incurring additional debt which ultimately led to the company's financial death spiral and liquidation. Initially, members of senior management altered the company's financial statements to overstate earnings. When it shortly became apparent that the company would not have adequate cash to operate, those same senior officer fabricated or altered records pertaining to inventory, sales and accounts receivable in order to obtain tens of millions of dollars of additional credit.
"Members of senior management were able to engage in this pattern of deception because the board wholly abdicated its role to install proper financial controls and oversight systems."
The bank claims the company reported its operating cash flow at $6.4 million when it was actually negative $6.7 million. Meadowcraft owes its creditors almost $64 million, according to the complaint.
Named as defendants are former CEO Samuel Blount, who with his family owned 90 percent of the company's shares; former CFO Larry Maynor; former COO Jerry Camp, who owned about 10 percent of the company stock; former financial services manager Brandon Moore; former controller Walter Markle; and former employee William Echols. Echols established an entity called Outdoor Experience, and used it to conspire with one or more of the other defendants "to enter into a sham transaction with Meadowcraft in order to allow Meadowcraft to take millions of dollars of obsolete inventory off its books," according to the complaint.
The creditors also accuse the men of abusing travel and expense accounts to the tune of more than $150,000, for personal purchases, electronics, entertainment and restaurants.
Creditor-plaintiffs include Webster Business Credit Corp., Burdale Finance Ltd., and RZB Finance.
Their lead counsel is James Pratt III, with Hare, Wynn, Newell & Newton.
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