Business

Necco trustee sues former owner and executives, alleging mismanagement

The Necco factory in Revere was abruptly shut down in July by its new owner, an unspecified candy manufacturer.
Charles Krupa/Associated Press
The Necco factory in Revere was abruptly shut down in July by its new owner, an unspecified candy manufacturer.

The Necco candy plant in Revere abruptly closed in July, ending the company’s century-long tradition of candy-making.

Now comes the fight over the scraps.

The trustee in the New England Confectionery Co.’s Chapter 11 bankruptcy case has sued the now-defunct company’s former owners and previous leaders, alleging they ran the business into the ground while pocketing millions from the sale of its real estate.

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The two lawsuits were brought by trustee Harold Murphy against private equity firm Ares Capital and a related company that Ares acquired, as well as several former Necco board members affiliated with Ares. One, in bankruptcy court, is partially aimed at protecting what little money remains after the recent sale of the company, about $13 million, for a group of Necco creditors that includes suppliers and an employee pension fund. That creditor group claims it is still short some $20 million.

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The second lawsuit, filed in US District Court in Boston, seeks monetary damages from Ares and the former board members.

Murphy declined to comment when reached by phone on Wednesday. Ares did not return requests for comment.

The trustee’s lawsuits focus on two pivotal deals: The first was in 2007, when ACAS, a private equity firm that has since been acquired by Ares, bought Necco. ACAS then proceeded to split Necco into two, putting its 50-acre property in Revere, with its 830,000-square-foot plant, into a new business separate from the money-losing operation that made candy hearts, wafers, and Sky Bars.

The second deal involved an effort in 2016 to sell the candy business and real estate in a complicated process that would have yielded $22 million for Necco to relocate into a smaller, more efficient space, pay back taxes, and set aside money for pension liabilities and working capital. But Murphy alleges that Ares, then in the process of acquiring ACAS, wanted all the proceeds for itself, and engineered the sale of just the real estate, for $54.5 million.

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At that point, Necco’s days in Revere appeared to be numbered. The candy business had been losing at least $10 million a year, according to Murphy, and could not make its lease payments to its new landlord.

Ares moved to sell the candy company to a liquidator through a bankruptcy auction. In May, a firm whose principals had previously revived the Hostess brand out of bankruptcy, Round Hill Investments, won the auction for Necco with an offer of $17.3 million. (Murphy has also sued Round Hill over a $1 million payment that remains in dispute.)

Round Hill subsequently decided it could not repeat the Hostess feat with Necco, and quickly sold the brand to another, unspecified candy manufacturer, prompting the sudden closure of the Revere factory.

Jon Chesto can be reached at jon.chesto@globe.com.