Furniture firm asks to hold a final sale

Furniture retailer I.O. Metro, which does business as Erdos at Home, has filed for bankruptcy protection and is asking a judge to allow the company to hold a going-out-of-business sale.

I.O. Metro filed a bankruptcy petition in the U.S. District Court, Northern District of Texas late last week, requesting Chapter 11 protection and listing between 1,000 and 5,000 creditors, along with between $1 million and $10 million in assets, and $10 million and $50 million in liabilities. Chapter 11 allows a debtor, usually a business, to continue operations while reorganizing its debts so creditors can be paid.

Founded in 2005 in Bentonville, I.O. Metro was acquired by an investment group that included Florida-based Banyan Mezzanine Funds and Little Rock-based Diamond State Ventures in 2011. At that time, the retailer operated 21 stores in eight states including five in Arkansas.

According to documents, Banyan and Diamond State Ventures II became the retailer's owners in March 2015 and weeks later John Erdos was named the operation's new CEO. The company's headquarters was moved from Lowell to Dallas in December 2015. At the time of the bankruptcy filing, the company had 13 stores in seven states including three in Arkansas and an Arkansas distribution center.

Documents filed with the court Monday show that I.O. Metro lost $8.2 million in 2015, $11 million in 2016 and $2.7 million during the first quarter of 2017. The company's owners decided that the business could not be saved and that a controlled liquidation was the best way to maximize the company's assets.

Professor Tim Tarvin of the University of Arkansas School of Law at Fayetteville, who teaches bankruptcy and nonprofit law, said there are advantages to liquidating a business though a Chapter 11 filing -- primarily it gives the existing management more control. If the company had filed under Chapter 7, a trustee would have been put in charge of the company's assets.

"This is an exception to the rule, but it's not unusual," Tarvin said.

The company asked the court Monday to expedite its approval of the going-out-of-business sale. In the Monday filing, it said the company's assets were mostly its furniture and accessories inventory valued at between $1.5 million and $3.1 million. Its secured debt is $1.2 million and unsecured debt is $31.3 million.

Tarvin said the sale will likely allow the company to at least cover its secured debt, which must be paid back first.

Privately held Little Rock-based Arkansas Capital Corporation Group formed Diamond State Ventures in August of 1999 with Joe T. Hayes as managing partner. Diamond State Ventures II, LP was formed in 2005 and lists Hayes as its agent.

A phone message left at Arkansas Capital Corporation Group requesting comment about the bankruptcy was not returned Wednesday afternoon.

Business on 04/27/2017

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