J.C. Penney Co. stockholders have reached a compromise in the retailer’s Chapter bankruptcy case.
On Tuesday, David Jones, a judge for U.S. bankruptcy court for the Southern District of Texas, ordered that an informal group of the retailer’s shareholders may form an ad hoc equity committee. In addition, the judge allocated $250,000 for professional service fees for the group. Jones said he sees the committees role as educating shareholders and promoting discussion about the status of the case and how the Chapter 11 process work. As a tradeoff, the shareholders have agreed to cease their attempt to have JCPenney’s Chapter 11 case thrown out.
Oftentimes, shareholders are unable gain recovery when a company files for Chapter 11 — as stock repayment ranks below other payouts. However, squabbles with equity investors can slow down proceedings and result in hefty legal fees for the bankrupt party. So far, JCPenney shareholders have played an active role in the bankruptcy proceedings — with some suggesting in court documents that the retailer could have avoided bankruptcy had it not awarded bonuses $1 million or more each to four executives this March.
JCPenney, which was founded 118 years ago, filed for Chapter 11 protection on May 15. According to court documents, the retailer had $500 million in cash at hand and received debtor-in-possession financing commitments of $900 million. The company listed assets in the range of $1 billion to $10 billion — the same as its estimated liabilities. As part of its bankruptcy plan, JCPenney expects to close 242 doors, or about 29% of its fleet, by February 2021. A first round of closures, including 154 stores across 20 states, will begin this summer. The company, which employs about 85,000 people, is also in the process of reducing its staff.
Prior to its bankruptcy filing, JCPenney had for several years struggled with declining sales, numerous leadership changes and increased digital competition. Since taking the helm in October 2018, CEO Jill Soltau has shut down several underperforming stores and brought on new talent to help revive the business. What’s more, the company hired debt restructuring advisers in July 2019 as part of its turnaround plan, as well as experimented with new strategies including tapping into the outdoor and consignment markets and launching a curbside pickup program. However, Wall Street had largely lost faith in the retailer, pushing its stock below $1 and putting it at risk of being delisted from the New York Stock Exchange. And that was before the coronavirus pandemic, which caused the chain in March to furlough workers and take additional actions to maintain its financial flexibility.