BALDWYN – Hancock Fabrics blames its longtime accounting firm for its downward financial spiral, which ultimately sent the Baldwyn-based company into bankruptcy.
The allegations come in a lawsuit against PricewaterhouseCoopers LLC, which first was filed in Circuit Court of Lee County but PwC moved to federal court.
The craft and fabric retailer seeks $30 million in damages and fees from PwC, according to Hancock’s attorney Jason Collins of Austin, Texas. He said the total represents Hancock’s out-of-pocket costs caused by PwC’s requirement in 2005 that the retailer change the way it inventoried fabric at its more than 400 stores, which then led to other financial problems.
Collins said the change was “unreasonable and completely arbitrary.”
PwC’s attorney at Holland Ray Upchurch amp& Hillen was unavailable for comment Thursday.
In its complaint, Hancock said because PwC made the inventory change almost at the end of the fiscal year, it caused the retailer to miss its deadline to file required paperwork with the U.S. Securities and Exchange Commission. Hancock’s vendors then tightened their credit terms because of the missed deadline.
After multiple missed filings, Hancock was delisted from the New York Stock Exchange. It also defaulted on its revolving loan.
Then on March 21, 2007, the company filed for Chapter 11 bankruptcy protection.
During bankruptcy, the company caught up on its filings and secured $100 million in exit financing. The retailer emerged in August 2008 and now operates 263 stores.
Thursday, Hancock’s lawsuit multi-million dollar lawsuit was moved to the U.S. District Court of Northern Mississippi from Lee County, where it was originally filed March 13.
PwC asked for the court change, which it says is appropriate because of ongoing bankruptcy proceedings between the accounting firm and Hancock. PwC claims Hancock owes it at least $678,390 in fees.
Hancock’s Chapter 11 bankruptcy case is filed in Delaware. Late Wednesday, PwC also asked the federal court in North Mississippi to transfer the case to its counterpart in Delaware.
PwC says Hancock’s claim against it for professional negligence is effectively a counterclaim against PwC’s claim for nonpayment of professional fees, which has a direct bearing on the bankruptcy resolution.
Patsy Brumfield and Carlie Kollath/Daily Journal