In a significant development in the Art Van Furniture bankruptcy saga, a federal judge has approved an $8 million settlement against heirs of the late Art Van Elslander. The lawsuit, initiated by the trustee in the bankruptcy case, sought to recoup tens of millions in proceeds from the retailer’s 2017 sale to a private-equity firm. The heirs, who have vehemently denied any wrongdoing, will pay the settlement amount through business insurance policy proceeds, not out of pocket. The settlement also encompasses former Art Van CEO Kim Yost and the Boston-based private-equity firm Thomas H. Lee Partners, who were also implicated in the case.

The trustee had initially aimed to recover $105 million in alleged "fraudulent transfers", a term used in bankruptcy court to suggest a third party did not receive fair value in a deal. This settlement, approved by Judge Craig Goldblatt of U.S. Bankruptcy Court in Delaware, brings an end to these claims and releases the Van Elslander heirs from any future allegations related to the company’s sale and its subsequent liquidation bankruptcy in March 2020. Despite the resolution, the family remains disgruntled about the fate of the company and its thousands of employees post-sale.

Art Van Furniture Bankruptcy Settlement Approved

Federal Judge Craig Goldblatt of U.S. Bankruptcy Court in Delaware has approved an $8 million settlement in a lawsuit associated with the Art Van Furniture bankruptcy case. The lawsuit was filed against the heirs of the late Art Van Elslander by the bankruptcy trustee. It aimed to retrieve tens of millions in proceeds from the retailer’s 2017 sale to private-equity firm, Thomas H. Lee Partners. The Van Elslander heirs have denied all allegations of wrongdoing as part of the settlement, which also shields them from any future claims related to the company’s sale and subsequent liquidation bankruptcy in March 2020.

Payment Through Business Insurance

Interestingly, the heirs will not pay anything out of pocket. Instead, they will utilize the proceeds from a business insurance policy for their part of the settlement. The settlement also covers Kim Yost, the former Art Van CEO, and the Boston-based private-equity firm. The lawsuit sought to recover $105 million in what is referred to as "fraudulent transfers" in bankruptcy court. However, this term does not necessarily imply a crime but rather claims that a third party did not receive fair value in a deal.

Reactions from Van Elslander Family

Gary Van Elslander, who served as Art Van Furniture’s president until the 2017 sale, expressed relief at the lawsuit’s conclusion but also expressed disappointment at the company’s fate after its handover to the private-equity firm. He stressed that the company was solvent and set up for success after the sale, and the allegations made by the bankruptcy trustee against their family were baseless. He also expressed concern for the employees who lost their jobs when the retailer closed, stating that they probably got hurt worse than anyone.

The Settlement Breakdown

The majority of the $8 million in settlement money is coming from the National Union Fire Insurance Company of Pittsburgh, which provided coverage, including for breach of fiduciary duty claims, to Gary Van Elslander, Yost, and various Thomas H. Lee Partners officials who sat on Art Van’s board of directors. The settlement followed mediation sessions in December and late January.

The Future of Art Van Furniture

The trustee’s lawsuit centered on a series of sale-leaseback transactions for nearly 40 Art Van Furniture stores and related properties, which the retailer previously owned outright. The proceeds from these transactions financed 70% of the $621 million sale deal in 2017. The trustee argued that these sale-leasebacks burdened Art Van Furniture with new rent expenses and a debt load from the deal, which eventually led to the company’s downfall. In 2021, the Van Elslander family purchased the legal rights to the Art Van Furniture name from the bankruptcy court for $6 million, protecting the memory of Art Van and keeping the possibility open for future use.

Takeaways

This case highlights the complexities of bankruptcy cases and the role of insurance in such settlements. It also underscores the potential fallout for employees during such proceedings, with thousands losing their jobs in this instance. Finally, it serves as a reminder of the importance of protecting a brand’s legacy, as demonstrated by the Van Elslander family’s decision to repurchase the Art Van Furniture name.