Heirs of the late Art Van Elslander would tap business insurance policy proceeds and pay nothing out of pocket as part of a proposed $8 million settlement agreement with the trustee for the Art Van Furniture bankruptcy case.
The tentative settlement, laid out last week by the trustee in federal bankruptcy court in Delaware, would end the trustee’s lawsuit against the Art Van heirs and release them from future claims — if the judge approves the agreement.
The settlement would also cover former Art Van CEO Kim Yost and the Boston-based private-equity firm Thomas H. Lee Partners. The Art Van family in March 2017 sold their furniture retailer to the private-equity firm in a complex $621 million deal.
Nearly all of the settlement money is to come from the National Union Fire Insurance Company of Pittsburgh. National Union provided insurance coverage, including for breach of fiduciary duty claims, to former Art Van President Gary Van Elslander, Yost and various Thomas H. Lee Partners officials who sat on Art Van’s board of directors, according to settlement documents.
More:Bankruptcy trustee wants Art Van Furniture heirs to repay millions
More:Art Van Furniture files for Chapter 11 bankruptcy, could still face liquidation
Of the $8 million settlement amount, $7.5 million is to go to the bankruptcy trustee and $435,000 to the private-equity firm for legal expenses. The private-equity firm then would make a $65,000 payment to the trustee.
National Union next would pay out an additional $1.5 million for the Van Elslanders’ legal costs and about $19,000 for Yost’s legal costs.
The 2017 sale deal involved a flurry of sale-leaseback transactions for Art Van Furniture stores, with proceeds from those transactions financing 70% of the $621 million deal, according to the trustee’s lawsuit. The sale-leasebacks saddled Art Van Furniture with new rent expenses — on top of a debt load from the deal — that, according to the lawsuit, proved unsustainable and ultimately doomed the company.
Three years later in March 2020, Art Van Furniture filed for what became a Chapter 7 liquidation bankruptcy.
Company founder Art Van Elslander was still alive when the sale of the company happened. He died the following year at age 87. Gary Van Elslander is one of his sons.
The bankruptcy trustee, Alfred Giuliano, in March 2022 filed the lawsuit against the heirs and other others, seeking to recover $105 million of so-called “fraudulent transfers.” In bankruptcy court, that term doesn’t necessarily refer to any crime having been committed and is rather a claim that a third party did not receive fair value in a deal.
The proposed settlement agreement states that the Van Elslander heirs and Yost “deny and vigorously dispute” all claims of wrongdoing in the lawsuit.
Any objection to the proposed settlement must be made by Aug. 10 and a hearing on the settlement is scheduled for Aug. 17.
“We are pleased to have reached a tentative agreement in this matter and look forward to putting it behind us, once it is finalized,” Gary Van Elslander told the Free Press in a statement.
The bankruptcy trustee did not immediately respond Wednesday to questions about the settlement and why insurance policy proceeds are primarily involved.
A representative for Thomas H. Lee Partners declined comment, as did a lawyer for the National Union insurance company.
Nearly 190 Art Van stores closed and roughly 3,000 workers in nine states lost jobs in the wake of the retailer’s bankruptcy. Creditors had hundreds of millions in unpaid claims, according to the bankruptcy trustee.
Thomas H. Lee Partners later set up a nearly $2 million hardship fund to help the laid-off Art Van employees, enough money for about $1,200 for each eligible former worker.
Contact JC Reindl: 313-378-5460 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.