As Sears continues to hang on by a thread, many unpaid Sears vendors have grown impatient with awaiting payments from the debtor as it continues operations. In late September, yet another group of vendors filed a request to convert Sears’ Chapter 11 bankruptcy case to Chapter 7. The number of creditors that have requested case conversion is now almost seventy.
The latest group of vendors to object to the plan and request conversion of the case consists of thirteen entities, including manufacturers and textile factories in Asia, wholesale jewelry suppliers Helen Andrews and Beauty Gem, Inc., kitchen appliance provider, Purcell Murray, and luggage company, Forchier.
Sears recently borrowed about $150 million from lenders, including its billionaire owner Eddie Lampert. This new, fresh financing is backed by assets that include Sears’ real estate and intellectual property. It will hopefully help Sears get through the holiday shopping season, as it struggles to rebound and turn a profit in a market dominated by Amazon Prime and other internet retailers. Lampert has extended loans through his hedge fund ESL Investments to Sears for the last ten years until Sears Holdings Corporation and countless related subsidiaries filed for bankruptcy in 2018.
On October 15, 2019, the Bankruptcy Court entered an order confirming Sears’ Modified Second Amended Joint Chapter 11 Plan. Apparently, when it came to the choice between a sudden influx of cash and the pleas of desperate creditors imploring conversion, the former won.
The latest objection alleges that several of the thirteen are approaching insolvency themselves as a result of Sears paying its attorneys instead of paying debts. They argue that the settlement plan in its present form presents “serious issues regarding whether the plan has been proposed in good faith.” “The objecting parties have been severely impacted by the debtor’s bankruptcy cases and are now being pushed closer to insolvency as a result of the proposed treatment under the plan.”
The objection further contended “There is cause to convert these cases from cases under Chapter 11 to cases under Chapter 7 because the debtors (Sears Holdings Corp.) have sold substantially all of their assets, money that remains in the estate is being depleted, and there are no proceeds available to fund an approximately $180 million shortfall in administrative claims. … Moreover, the debtors’ estate continues to incur substantial professional fees with no chance of additional money coming in other than through the sale of a few de minimis assets and success in the [transformation] and other potential litigations.”
Creditors continue to implore the court to stop attorneys for the debtors and creditors’ committee from further wasting what little cash remains in the estate as it rightfully belongs to administrative creditors. The latest set of vendors has made it clear that they do not consent to wait for an unknown time period to be paid in full.
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