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Gildan Court Filing Opposes Motion To Liquidate Heritage Sportswear

It’s the latest development in a case that could end with the promo industry’s 10th largest supplier being shuttered.

Top 40 supplier Gildan (asi/56842) is challenging a motion filed in federal court that seeks a judge’s approval to have Ohio-headquartered Top 40 supplier Heritage Sportswear (asi/60582) liquidated.

Attorneys for Montreal-based Gildan filed their counter motion in the U.S. District Court for the Northern District of Georgia, Atlanta Division, on Thursday.

The counter motion says the liquidation request should be denied because it violates a previously approved court order related to a receiver being appointed to oversee Heritage during its financial difficulty.

The violation lies in that the liquidation motion, if granted, would allow a third-party company to sell off Gildan inventory – without Gildan’s permission – as part of the proposed cashing in on Heritage’s assets, the Canada-based supplier maintains. Heritage, a wholesaler of Gildan apparel to the promotional products industry, had the Gildan inventory under consignment agreements.

Court papers indicate that Gildan believes Heritage/the receiver currently possesses about $8 million in Gildan inventory. The Gildan filing also indicates that Heritage owes Gildan some $7.9 million for inventory that Heritage has already sold under the consignment agreements.

Gildan maintains that it should receive all of its consigned inventory back, as well as proceeds from the Gildan inventory that Heritage has sold. Gildan will “credit their value against the indebtedness owed by Heritage to Gildan.”

Gildan is concerned that it will get significantly less than what it’s owed if the proposed third-party liquidation company, Hilco Merchant Resources, sells off the Gildan inventory that currently remains with Heritage. That’s because Hilco will assess a fee for its work – 3% to 10% of the net recovery of Heritage’s liquidated assets, as well as expense deductions, according to court papers.

In March, Gildan issued a warning to investors that its earnings will likely be impacted by the anticipated liquidation of Heritage Sportswear, the 10th largest supplier by revenue in the advertising specialty market.

Gildan said adjusted diluted earnings per share are expected to drop from the previously anticipated $0.24 to $0.26 to a range of $0.14 to $0.16. For the year, Gildan projects that the possible liquidation of Heritage will lead to adjusted diluted EPS registering between $1.90 to $2.00, compared to a previous guidance of $2.00 to $2.10. Gildan does not think top line revenue will be affected.

In March, Gene R. Kohut, of financial firm Conway MacKenzie, Inc., filed the motion asking the court for permission to begin an orderly wind down of Heritage’s operations and, ultimately, liquidation of its assets.

Amid Heritage’s recent financial difficulty, Kohut became the company’s court-appointed receiver. In that role, Kohut continued Heritage’s business operations, but “given Heritage’s continuing losses, lack of ability to find adequate financing, and lack of a viable way to turnaround or sell its business,” he determined that it’s in the best interest of the receivership estate and its creditors to liquidate the supplier firm, according to court documents. Attempts to sell Heritage have failed, the documents noted.

Shoulder Heritage be shuttered and its assets sold, most of the collateral proceeds from the liquidation would be distributed to the plaintiff named in Kohut’s motion – Atlanta, GA-based Cadence Bank, according to court papers.

Sources close to the situation have previously told Counselor that Heritage is continuing to operate, which includes receiving orders, billing and collecting. It’s also been indicated that Heritage has been in negotiations that could lead to an arrangement that would allow the supplier to continue to operate well into the future. Still, sources didn’t respond to a request for comment on the latest Gildan filing, and it was unclear what Heritage feels the future holds at this point.

Regardless, it’s possible that Heritage Sportswear’s fate could be determined on Monday, April 15. That’s the day U.S. District Judge Cohen has set to consider Kohut’s liquidation motion.

Founded in 1982, Heritage employs about 350 people across five locations in Ohio, Virginia, Indiana and Florida, according to court documents. The company, which sells everything from polos and T-shirts, to outerwear, headwear and more, ranks 10th on Counselor’s latest list of the largest suppliers as determined by North American promotional products revenue.

For 2017, Heritage reported flat industry sales of $141.6 million due to what it characterized as “market conditions.” In 2013, the firm acquired former Top 40 supplier Virginia T’s, but has since dropped the Virginia T’s branding.