Roark Capital Group would pay $3 million to the bankrupt former operator of Pike Nurseries, in a settlement aimed at putting to rest questions about whether Roark drained the company of capital after buying it in 2004.
The proposed settlement, filed this week in U.S. Bankruptcy Court in Atlanta, is subject to approval by Pike Nursery Holding's bankruptcy judge. A hearing is scheduled Oct. 15, and parties to the case could still file objections.
The settlement was filed by the trustee in the Chapter 7 case, Marcus A. Watson.
If approved, the settlement would not affect the current Pike Nurseries chain, whose 16 metro Atlanta stores are now owned by California-based Armstrong Garden Centers.
But it would avoid a potentially lengthy and expensive legal battle over Roark's actions after the Atlanta private equity firm acquired what had been a family-run nursery chain founded in 1958.
In the settlement filing, Watson said he began investigating Roark's operations and transactions related to Pike following the acquisition.
He said he sought to determine whether Roark and Pike family members, who retained a minority stake in the company, were able to recoup their investments at the eventual expense of Pike Nursery Holding and its creditors. As is typical with such cases, the trustee's investigation looked for potential assets against which Pike might have been able to file claims.
But in the filing Watson said proving Roark took actions to drain the company before its failure would be difficult, time-consuming and expensive, leading him to accept a mediated settlement as a better outcome for all parties.
Jack F. Williams, a law professor at Georgia State University, said the trustee would have to show which assets were transferred to Roark from Pike and what they were worth and demonstrate what Pike received in exchange. The trustee also would have to prove Roark knew Pike was insolvent or in financial distress.
"If they fail on any one of those elements, they lose entirely," Williams said. Pursuing such a case could cost $500,000 to several million, he said.
Watson said in the filing that at least two factors could make it hard to press claims against Roark. For one thing, Pike continued to operate for three years under Roark before filing bankruptcy. For another, Roark could be expected to argue that Georgia's severe drought -- not its financial moves -- led to the chain's demise.
After Roark bought Pike, the company went into expansion mode, opening new stores in metro Atlanta and setting up shop in Charlotte and Birmingham. By January 2007, the chain had hit its peak: 29 stores, including some wholesale locations.
But in getting there, Roark sold off many of the Atlanta store sites and then rented them under expensive lease-back arrangements, boosting operating costs.
Meanwhile, the drought led to strict watering bans and a sharp slow-down in landscape business. By November of that year, Pike sought bankruptcy protection and looked to reorganize debt totaling about $15 million.
In bankuptcy, Pike sold off its wholesale business in pieces and closed the Birmingham store. It also sold the rights to the Pike name and several of its stores to Armstrong Garden Centers.
With its major assets gone, Pike Nursery Holding sought to liquidate.
Officials at Roark Capital -- one of Atlanta's more prominent equity firms, with $1.5 billion in assets under management -- did not respond to requests for comment Wednesday.
John A. Christy, a lawyer who represents trustee Watson and Pike Nursery Holding, said the settlement is the best outcome, given the riskiness of trying to prove claims against Roark.
"This way at least, there's money today," he said.
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