Investor sues Brown Publishing; accuses “shell game”

BY: Gerry Minick

The parent company of the Wyoming Business Report, Brown Publishing Co., has filed for Chapter 11 bankruptcy while allegations of corporate wrongdoing are swirling in an Ohio court.  

Cincinnati-based Brown Media Holdings, Brown Publishing Co. and related subsidiaries filed a request for protection in U.S. Bankruptcy Court for the Eastern District of New York.

Brown is attempting to sell essentially all of its assets to a bidder that would involve all of the companies’ assets in Ohio, Colorado, New York, Texas, South Carolina, Illinois, Iowa, Utah, Arizona and Wyoming.

Other subsidiaries named in the filing include Boulder Business Information LLC, Utah Business Publishers LLC, Texas Business News LLC, Texas Community Newspapers Inc. and Upstate Business News LLC.

Brown has asked for court approval of several motions, including $2.5 million of debtor-in-possession financing, use of cash collateral, maintenance of employee payroll and health benefits and continuation of the companies’ cash-management systems. Granting those motions would enable the companies to continue to operate as normal pending the sale, the press release stated.

Executives named as defendants

 Meanwhile, West Coast investment firm Windjammer Capital Investors alleges in a lawsuit that the family-controlled Ohio chain shifted its newspapers and other assets to shell companies and was preparing a bankruptcy filing — all with the aim of keeping the firm from collecting at least $9 million under a stock warrant agreement.

Acting on a request in the lawsuit by Windjammer, an Ohio judge issued a temporary restraining order in the case — but later lifted the order while denying Windjammer’s request for a preliminary injunction against Brown Publishing and several executives named as defendants.

Brown Publishing, the lawsuit says, “initiated a scheme of trying to move assets between shell companies in order to avoid contractual and fiduciary duties to Windjammer.”

Windjammer alleges that without its knowledge, Brown Publishing created a new limited liability company called Business Publications, and that on March 20, again without notice to Windjammer, Brown Publishing’s board of directors approved a “sale” of all the company’s assets to Business Publications. Other shareholders were aware of the transfer, and approved a bankruptcy filing.

“The sale would not include any payment to Brown Publishing and would leave it an empty shell with no assets,” the lawsuit says. The suit was first reported by Cincinnati Enquirer reporter Mike Boyer.

Judge Steven E. Martin instructed Brown Publishing to provide Windjammer with documents and records relating to the transfer of assets to Business Publications and any sale or proposed sale of assets to Business Publications.

“If Brown Publishing is permitted to consummate the asset transfer with its insiders, it will render Brown Publishing insolvent and unable to satisfy its obligation to Windjammer,” the lawsuit says. “Brown Publishing’s shareholders, other than Windjammer, appreciated that fact because they voted to authorize Brown Publishing to file for bankruptcy.”

Learning of the transfer, Windjammer said that on March 27, it exercised a “put” option under which it says it must be paid “the greater of $9 million or the fair market value” of all exercised and unexercised shares under its warrant agreement.