The Official Committee of Unsecured Creditors of Fortunoff has filed suit against the holding company for the famed retailer, claiming the jewelry and home furnishing chain did not have to file Chapter 11 last year, and by doing so hurt the company’s unsecured crditors.
The court papers charge:
The Lenders [UBS Securities LLC and Wells Fargo Retail Finance] wrongfully declared a default under Fortunoff’s pre-petition loan facility, created a liquidity crisis for the Company, forced Fortunoff to unnecessarily file a chapter 11 petition, forced an onerous debtor in possession facility on the Debtors and forced the Debtors to conduct a fast-track liquidation that maximized the return to Lenders to the express detriment of the Debtors estates. ….
The Lenders aggressively prevented the Debtors from being able to pursue any options that might maximize the value of the Debtors’ assets for the benefit of their estates, including other creditors. With no prior notice, the Lenders called a spurious default under the Debtors’ sole financing facility and this appears to have given the Debtors no option but to capitulate to the Lenders desire for an immediate liquidation of the Debtors’ assets and onerous terms during the liquidation process, both before and after the bankruptcy filing.
The Lenders received an enormous windfall from this bankruptcy case, including large, upfront fees for a very short-term DIP facility they forced on the Debtors. The Lenders used the bankruptcy process to quickly cash out their over-secured position, leaving behind a new class of unpaid creditors arising from an insolvent estate.
They also that Fortunoff was given only three days to begin the process for selling its business as a going concern or selling its assets through “going out of business” sales.
UBS declined comment; I’ve left a message from Wells Fargo but haven’t heard back. NRDC delcined comment as well. But it’s an interesting development in one of the more bitter bankruptcies in recent years.