Did Fortunoff Have to File Chapter 11?

Fortunoff’s bankruptcy in February, which eventually led to its liquidation, was one of the most bitter of recent years, with many creditors complaining about the raw deal they got from owner NRDC. Now some charge the filing didn’t have to happen.

The Official Committee of Unsecured Creditors of Fortunoff recently filed suit against the holding company for the famed retailer, as well as lenders UBS Securities and Wells Fargo, claiming this year’s Chapter 11 was a result of a “wrongful” default.

The court papers say this default “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 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 papers add. “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 charge 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 and Wells Fargo declined comment, as did former owner NRDC.