The drama over Sears’ bid for survival continued during a bankruptcy court hearing on Monday. The ailing retailer sought approval of a $5.2 billion sale to chairman Eddie Lampert’s namesake hedge fund that would keep it alive.
Lawyers for the once-dominant department store chain faced off with its unsecured creditors’ committee, which argued against ESL Investments Inc.’s proposal before Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York.
The ruling, which is expected to be made late in the week, will come after more hearings that could potentially extend into Thursday.
The creditors’ committee filed a motion less than two weeks ago exploring a possible lawsuit against the billionaire executive and ESL. It claimed that Lampert “worked hard to conceal” an “intricate scheme” to strip Sears of its assets, closing 3,500 stores and losing 250,000 jobs as he and his hedge fund collected “untold billions.”
“Sears’ downfall is nothing short of tragic,” the filing read. “In effect, Lampert and ESL managed Sears as if it were a private portfolio company that existed solely to provide the greatest returns on their investment, recklessly disregarding the damage to Sears, its employees and its creditors.”
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“The [unsecured creditors’ committee’s] statements are misleading or just flat wrong,” a spokesperson for ESL said. “We reject the UCC’s assertions and will vigorously contest their claims concerning these transactions.”
The comments came just over a week after Lampert won a bankruptcy auction with an takeover bid that would not only prevent the 126-year-old business from liquidating its assets but also save up to 45,000 jobs and keep 425 stores in operation. He remains Sears’ largest investor, with ESL loaning the company upwards of $2.4 billion in financing over the last several years.
Through their lawyers from Akin Gump Strauss Hauer & Feld LLP, the creditors expressed hopes that Sears would be advised to liquidate instead of accepting the restructuring offer.
On Monday, they went head-to-head with a representative from Sears’ investment bank, Lazard Freres & Co., and board member William Transier, discussing ESL’s assumption of $166 million in liabilities and the company’s financial ability to retain tens of thousands of employees. Lampert’s plan also includes the potential closings of three stores a month this year as well as the sale of $600 million in real estate holdings over the next three years.
Once a dominant force in retail, Sears filed for Chapter 11 bankruptcy protection on Oct. 15. The Illinois-based company has failed to turn a profit since 2010 and now joins a number of high-profile bankruptcy victims, including Toys R Us and Bon-Ton.
The developments come as brick-and-mortar mainstays continue to shrink their physical footprints and invest more resources in e-commerce.
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