The fate of Family Christian Stores, the largest chain in the Christian retail industry, continues unresolved after a judge rejected the Family Christian (FC) Acquisition bid. Currently there is no sale to any bidder. The decision comes after a long and heated battle in federal bankruptcy court following the controversial initial auction.

After reporting a steady decline in sales since 2008, the chain found itself over $90 million in debt. This led to a formal declaration of bankruptcy Feb. 11, followed by an auction for the company that was completed in court in a marathon session in the early hours of May 27. Hilco Merchant Resources LLC and Gordon Brothers Retail Partners offered a $49.8 million deal, but FC Acquisition LLC was declared the highest bidder with a bid of $43 million.

The discrepancy led Hilco/Gordon to suspect foul play and bring the matter to court. Had they won, Hilco/Gordon wished to liquidate the company and sell off the assets in order to cover the debts to investors. They argued that this, paired with the higher bid, made their offer the most reasonable. In official court documents, they alleged that the only explanation is that the auction was “rigged” from the beginning.

Yet Family Christian says there were other considerations at play. If successful, FC Acquisition intended to keep over 90 percent of the chain’s 266 stores in 36 states open and restructure the company for future success. Family Christian CEO and President Chuck Bengochea testified to personally contacting the main backer—Richard Jackson, who controls FC Special Funding—and securing his bid. From Hilco/Gordon’s perspective, this was suspicious; from Family Christian’s, this ensured an optimal buyer.

In his opinion, Judge John T. Gregg denied FC Acquisition’s right to purchase Family Christian Stores. He reasoned that Hilco/Gordon was within their legal right to object to the sale, and that though allegations of fraud and unfairness were unfounded, there were clear mistakes made in the auction process. In light of these mistakes, Gregg felt that Family could not articulate “sound business justification” for its sale to either bidder.

Though creditors initially sided with Hilco/Gordon, pre-trial developments indicated favor shifting toward FC Acquisition. Prior to the trial, Credit Suisse agreed to settle for $5.45 million rather than the initially proposed $2.7 million. Similarly, some publishers are considering accepting less money to ensure the stores remain open. Closing them cuts off an important distribution channel for Christian books, gifts and other products.

Provided the auction is reopened, the bidding is to restart by June 25 and conclude by July 2, opening the door for other parties to get involved or for one side to win definitively.

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