Forever 21’s Chapter 11 bankruptcy case should likely either be dismissed or converted to Chapter 7, the U.S. Trustee’s office wrote in a court filing on Friday.
In the filing, U.S. Trustee Andrew Vara wrote that the company’s plan to make payments to creditors is likely not feasible. The Forever 21 corporation — which is now a shell after the February sale of its namesake fast-fashion business to Authentic Brands Group, Simon Property Group and Brookfield Property Partners — appears to have no more than $5 million in its wind-down budget, the trustee wrote, compared with $100 million in post-petition claims after the sale.
According to the filing, “it does not appear that [Forever 21 has] any funds available to make any payments under a plan,” other than to cover professional service fees. Additionally, the shell company is two months behind in filing its monthly operating reports, which, Vara wrote, “does raise questions as to their ability to meet their obligations under Chapter 11 on a going forward basis.”
In light of the purportedly limited funds and missed operating reports, the trustee wrote, “dismissal or conversion of [the Chapter 11 proceedings to Chapter 7] may be appropriate.” Chapter 11 bankruptcy proceedings represent a restructuring, whereas Chapter 7 would mean liquidation. (Conversion or dismissal of the case would not impact Forever 21’s retail units and e-commerce sites, which are now the property of the ABG, Simon and Brookfield consortium.)
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Founded in 1984 by South Korean husband and wife team Do Won Chang and Jin Sook Chang, Forever 21 filed for Chapter 11 protection in September 2019, listing both estimated assets and estimated liabilities in the range of $1 billion to $10 billion. The fast-fashion chain said that it had employed 43,000 people and recorded $4.1 billion in annual sales at its peak. However, it had faced pressures in recent years stemming from changing consumer preferences, including the rise of e-commerce and dwindling mall traffic.
In February, Forever 21 was snapped up by a consortium of buyers including ABG, Simon and Brookfield for $81.1 million. As part of the acquisition, ABG and Simon each own 37.5% of the fast-fashion retailer, while Brookfield controls the remaining 25% of Forever 21’s intellectual property and operating businesses.