The company, which has been in operation since 1880, made the filing Monday with the U.S. Bankruptcy Court of the Eastern District of Tennessee in Chattanooga.
The move does not, however, mean the end of one of Cleveland, and the nation’s oldest clothing manufacturers
Tommy Hopper, chairman and president of the company, said the reason for the move was because of “the unexpected action” of the Pension Benefit Guaranty Corporation demanding immediate payment of liabilities related to the company’s terminated pension plan and the threat of filing a tax lien on Hardwick’s assets if an immediate payment was not forthcoming.
“This is not a move we wanted to take, but they forced our hand,” Hopper said.
The PBGC is a federal agency that was created as part of the Employee Retirement Income Security Act of 1974 and was designed to protect pension benefits in private-sector defined benefit plans.
The agency is financed from insurance premiums paid by companies whose plans the agency protects, the agency’s investments, assets of plans that have been taken over and recoveries from companies formerly responsible for the plans.
Hardwick had maintained a pension plan since 1966, but Hopper said in 2009 the company began experiencing circumstances that began to make the plan difficult to maintain while still keeping the company running.
The decision to discontinue the plan came in 2011.
“We realized at that time we could no longer sustain it,” Hopper said. “Because of the age of our company, it was more a demographic issue. That, along with the economic downturn and the reduced stock market, all made the plan impossible to maintain and keep the company running. It was a good plan for its time but was just no longer feasible for us.”
The company went to the PBGC over the summer to request a “distress termination,” which is an option open to companies if their plan does not have enough money to pay all of the benefits owed to participants, and the employer is in financial distress.
“We pay our bills and are debt free. We are not insolvent by any stretch of the imagination,” Hopper emphasized. “But, this had become a millstone around our necks.”
He said Hardwick was anticipating a more deliberative process involving their request.
“But, we got a letter on Oct. 22 saying ‘pay $7.3 million now or there would be a tax lien of $1.3 million’ imposed,” Hopper said. “That lien would have essentially put a firewall around the company.”
He explained having that lien would make it difficult if not impossible to maintain the flow of supplies to maintain the company’s production needs.
Hopper said the company asked for further talks and consultations with PBGC, after which they were asked for more information.
“Our history has been to always pay our bills and do everything we are supposed to do,” Hopper said. “That’s what we did.
“But after sending them the added information, there were no calls or contacts from them,” Hopper said. “We then received another notice on Nov. 22 to pay by yesterday (Monday) or there would be an increased tax lien of $2.3 million.”
Hopper said Monday was spent conferring with company management, legal counsel and tax counsel.
“I didn’t want to file,” he said. “We had hoped to settle this at the table, but [PBGC] has opted to settle this in court.”
The filing took place shortly after 4 p.m. Monday, which ensured the company’s protection at least until the issue can be heard by a bankruptcy judge.
“We feel good about this,” Hopper said. “We have more than 225 employees and look to hire more. We have a long history here in Cleveland and we are excited about the future. We firmly believe we will come away from this an even stronger company.”