Just one day after Gordy's Market announced three more grocery stores were closing, the company faces another setback in the form of an $86 million lawsuit.
The Minnesota-based Nash-Finch Company, one of Gordy's primary suppliers, has filed a lawsuit against Gordy's. The company claims that, between incentives, accounts receivable and liquidated damages, Gordy's owes it over $86 million as of July 17.
Gordy's has agreed to enter into a receivership.
Benjamin Nicolet, a law clerk with Nicolet Law Firm in Eau Claire, said a receiver is someone appointed by the courts. It is their job to essentially take over and manage the business to try and get Gordy's back in the black. All business transactions must be approved by the receiver, and reported back to Nash-Finch. It is also the job of the receiver to make sure Gordy's is not moving any money around where it shouldn't be in order to prevent debts from being paid off.
According to the lawsuit, Nash-Finch claims Gordy's is insolvent, or in imminent danger of insolvency, which Nicolet said basically means the company owes more than it is worth.
"So, if you look at a corporation, like its books, and they have all their accounts receivable, how much cash they have, the value of all of their property, and you compare that against all the loans and the debts that they have, if those debts exceed or are more than their property value, then they are considered insolvent," said Nicolet.
The court documents said Nash-Finch and Gordy's entered an agreement in December of 2015. The supplier then advanced over $41 million to refinance debt obligations. Then, in May of 2016, another advancement was made to the Gordy's Hayward location to purchase inventory.
Nash-Finch states in the lawsuit that Gordy's failed to timely pay the amounts due, and that all agreements have been terminated.
News 18 asked the law firm if a receivership is a form of bankruptcy, or way to avoid bankruptcy. Nicolet said it can be a way to avoid bankruptcy; it is a way to keep creditors, in this case Nash-Finch, happy. It is a way for Nash-Finch to manage Gordy's accounts and make sure loans are paid.
The best case scenario, Nicolet said, is that the receiver brings the business back to profitability.