By DUANE SHERRILL | Special to The Times
CHATTANOOGA — One week after creditors asked a federal judge to place Nearest Green under receivership, maintaining they had defaulted on their more than $100 million loans, the court has obliged and directed the distiller be placed under receivership.
“The Court finds they (the arguments) cumulatively weigh in favor of appointing a receiver,” said Judge Charles Atchley in his order. “The Court does not reach this decision lightly. It fully appreciates Defendants’ concerns and has given them great thought. But these concerns are insufficient to overcome the Court’s conclusion that a receiver is necessary to protect Farm Credit’s interests at this time.”
The judge said he hopes the receivership will be short term.
“That said, the Court will tolerate the existence of a receiver only so long as it is necessary,” he said. “If a material change in circumstances eliminates the need for a receiver, then any party may file a motion to dissolve the receivership.”
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The court’s decision comes after last week’s hearing in which attorneys for Farm Credit Mid-America argued that they were worried that Nearest Green had overestimated its collateral, namely the whiskey barrels, by over $21 million and that they feared there could be more liquidation of the remaining collateral if a receiver was not put in charge of finances to protect their collateral. The attorneys noted that they are owed over $100 million by Nearest Green at a rate that increases by $28,000 each day. It was also pointed out Nearest had missed its last $10 million loan payment and was expected to miss its next.
The defense for Nearest Green argued receivership would injure the brand and would therefore injure the overall worth of the distiller. Specifically, the defense said Fawn Weaver, CEO, is the face of the brand and removing her from the helm would cause irreparable damage. Also, the defense maintained the overestimation of barrels was done by their former chief financial officer who has since been let go. The judge did not put much weight to the assertion that Nearest was defrauded.
“Turning to whether the Defendants engaged in fraudulent conduct, this factor also weighs lightly in favor of a receiver,” the judge said. “It is undisputed that Senzaki (former CFO) misrepresented Uncle Nearest’s barrel inventory to obtain an additional $24 million under the revolving loan. The Court appreciates that Defendants (the Weavers) maintain they were unaware of these misrepresentations at the time but the fact remains that they were made by an Uncle Nearest officer as part of his official duties. In such circumstances, traditional principles of agency generally hold the employer responsible for its employee’s conduct.”
As for the defense argument that placing a receiver in control would injure the brand, the judge also said that had minimal weight, noting the Weavers could stay the face of the brand even during receivership.
“The Court is not convinced they render a receivership more harmful than helpful,” the judge said. “First, it is not clear to the Court that appointing a receiver would cause materially more brand damage than may already have been caused by the initiation of this litigation. Second, the Court can craft a receivership order that still allows the Weavers to market Uncle Nearest and further build the brand. By keeping the Weavers involved in this way, they could mitigate any potential brand damage that a receivership might entail.”
While the court has decided on receivership, it has not decided who will handle the role. The plaintiff had a receivership team present during the hearing last Thursday in Chattanooga. However, the defense argued they wanted a more local team. Both sides have been ordered to present their arguments as to who should serve as receiver by Aug. 20 at noon EST.