A federal judge on Wednesday issued an order that allows Heritage Sportswear (asi/60582), the 10th largest supplier in the promotional products industry, to be liquidated. Relatedly, Heritage’s top executive, President Tom Witthuhn, is no longer with the Ohio-headquartered firm, Counselor has learned.

U.S. District Judge Mark H. Cohen’s order allows for Heritage’s court-appointed receiver Gene R. Kohut – a kind of financial overseer – to begin the orderly wind down of the supplier’s operations. The order also authorizes a third-party firm that specializes in liquidation, Hilco Merchant Resources, to sell off Heritage’s assets. Proceeds from the liquidation will go to Atlanta, GA-based Cadence Bank, the plaintiff in the motion that asked for the court’s order to liquidate Heritage.

As a caveat, the order states that Top 40 supplier Gildan (asi/56842) can recover its fleece inventory that Heritage had been holding under consignment agreements. Heritage has been a Gildan wholesaler to the promo/imprinted apparel market. The court also restricted the sell off or disposal of additional Gildan inventory in Heritage’s possession – at least until authorized by a future court order. The complication arises from Gildan believing it has a right to have that additional inventory back, while Cadence believes the inventory can be sold by the receiver. Other Heritage assets can be liquidated, according to the April 24th order.

A timeframe for the selling off of Heritage assets and the ultimate shuttering of the business was unclear. It was also uncertain if the company was continuing to take orders and/or fulfill outstanding orders. Its website made no mention of anything being awry as of Wednesday afternoon. Counselor sought comment on such pivotal matters from Witthuhn, only to learn he was not employed by Heritage anymore.

Company instructions directed questions intended for Witthuhn to Kohut and John Cannon, identified as a financial advisor to Kohut. Both Kohut and Cannon are with Conway MacKenzie, a global management consulting and financial advisory firm. Kohut directed comment to his Michigan-based attorney, David Dragich. As of this late Wednesday afternoon writing, Dragich had not responded.

Employing approximately 350 people on 2018 revenue of about $150 million, Heritage nonetheless had been experiencing deep-reaching financial difficulty, according to court papers.

Last year, Heritage engaged investment firm SSG Capital Services as its cash flow struggles left the supplier unable to meet obligations to creditors, court papers indicate. SSG contacted 107 different entities that could possibly invest in the supplier to make it viable, court papers relate. That included 28 financial buyers with existing interest in the imprinted apparel industry and 22 parties that could present refinance options. Of all those, only one entity – Top 40 supplier TSC Apparel (asi/90518) – submitted a letter of intent for the acquisition of Heritage’s assets. Nonetheless: “Ultimately, TSC, Heritage and Heritage’s lenders were unable to reach an agreement,” court papers state.

“The receivership estate is rapidly losing money at the rate of approximately $500,000 per week,” court documents filed by Cadence attorneys said. “In order to reduce these enormous expenses, the assets (of Heritage) must be sold quickly...”

Heritage’s troubles have had a ripple effect in the promotional products industry. In March, Gildan issued a warning to investors that its earnings will likely be impacted by what was then the anticipated liquidation of Heritage. Gildan said adjusted diluted earnings per share are expected to drop from the previously forecast $0.24 to $0.26 to a range of $0.14 to $0.16. For the year, Gildan projected that the liquidation of Heritage will lead to adjusted diluted EPS registering between $1.90 to $2.00, compared to a previous guidance of $2.00 to $2.10. Gildan has maintained that top line revenue will not be affected. The Montreal-based company is scheduled to release its first quarter earnings on Wednesday, May 1.

Founded in 1982, Heritage has locations in Ohio, Virginia, Indiana and Florida, according to court documents. The company, which sells everything from polos and T-shirts, to outerwear, headwear and more, reported flat industry sales of $141.6 million in 2017 due to what it characterized as “market conditions.” In 2013, the firm acquired former Top 40 supplier Virginia T’s, but later dropped the Virginia T’s branding. Sources have indicated that troubles with integrating Virginia T’s were among the challenges Heritage faced.