Cash Strapped Friedman's Files for Chapter 11
January 17, 05
Troubled jeweler Friedman's Inc, facing federal fraud investigations, filed for Chapter 11 bankruptcy proceedings on Friday as it seeks financial breathing space after its major lenders last week reduced their cash flow to the company.
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As a result of the funding limitations, Friedman's said it was unable to satisfy all its cash requirements in the ordinary course of business.
Delayed receipts of inventory shipments during the Christmas holiday season and the implementation of more prudent credit practices had a negative impact on its holiday season sales and contributed to Friedman's not meeting December, 2004 minimum sales covenants in its credit facility.
The firm said the Chapter 11 action, which it filed in
“By availing ourselves of the Chapter 11 process now, Friedman's expects that our vendors will resume shipping inventory in anticipation of the upcoming Valentine's Day holiday,” says CEO Sam Cusano.
Chapter 11 is a reorganization bankruptcy where a debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.
The U.S. Securities and Exchange Commission and the Justice Department are carrying out fraud investigations into Friedman's, and to add to its problems it was also recently sued by the states of Texas, Tennessee and Florida for allegedly duping customers into paying for life, property and other insurance while they thought they were insuring their financing of jewelry purchases.
The company has replaced most of its senior executives in the past year, some of whom have lasted only a few months in their positions.