Court-Appointed Receiver Declares Uncle Nearest Is Broke

By Richard Thomas

Ever since Uncle Nearest creditor Farm Credit Mid-America (FCMA) of Louisville filed suit against the whiskey company over missed interest payments, the court case has been a soap opera colored by accusations of fraud, media “hit pieces,” conspiracy and misuse of funds. But it was the latest revelation that may prove to hit the highest note: the court-appointed receiver indicated in a filing made late Monday, February 2nd, that Uncle Nearest owed millions of dollars to the suppliers of its stocks of sourced whiskey.

New Revelations
Receiver Philip Young stated in the filing that Uncle Nearest was losing roughly $1 million per month when he took over, which he had since reduced to $100,000 per month. This was achieved through staff lay-offs and revised budgeting. He also negotiated an extension of a further $2.5 million in credit for the company. Uncle Nearest CEO and founder Fawn Weaver blames those losses on the negative publicity attached to the receivership affecting sales, and while it is true that Uncle Nearest sales have fallen sharply since the court battle began, that would not address the underlying point of how much money the company was losing at the time FCMA filed suit.

Prior to these revelations, both FMCA and Weaver had sought to seal the records, which would have prevented news of Uncle Nearest’s negative cash flow from coming out. The judge rejected the claim, allowing many company records into public scrutiny.

Young also stated his belief that, based on his dealings with the legal counsel for FMCA, that if control of the company were returned to Fawn Weaver and her husband, Keith, the creditor would immediately move for foreclosure. In the affidavit, Young stated, “Based upon my conversations with counsel for Farm Credit, I believe that Farm Credit would immediately cease covering these operational losses and move to foreclose on and repossess its collateral upon the expiration of this receivership.”

Weaver responded in an email to her investors, which was obtained by the Lexington Herald-Leader. One of Young’s recent actions has been to attempt to extend his receivership to include other companies owned by the Weavers, and it is now known that at least one of his reasons for doing so was the shuffling of $20 million between Nearest and Grant Sidney, an investment company owned by the Weavers. He alluded that it was suspicious, but could not prove wrong-doing. Weaver’s email explains at length that the transaction was part of a board-approved sale of stock in Uncle Nearest, the proceeds of which were invested back into the company.

Weaver’s Formal Response
The Weavers had until Thursday to respond in court (rather than to investors), which they did. Yesterday they petitioned the court for a second time to terminate the receivership. arguing that the company is solvent; stating again that the receivership is harming the brand’s value and sales; and pointing out that it is the receivership that is losing money, as it as charged over $2 million in fees over the last five months.

Strictly speaking, the Weavers are correct: Uncle Nearest has hard assets on the books clearly in excess of their debt, which is the legal standard for solvency. Indeed, the receiver has moved to sell some of those assets to address the company’s $108 million debt to FMCA. The rebuttal to that assertion is to ask if Uncle Nearest could generate the positive cash flow necessary to resume servicing that $108 million in outstanding debts to FMCA, to say nothing of paying the bills on the recently revealed millions owed to various vendors, without selling those assets.