Bankrupt women's apparel company BCBG Max Azria Group Inc. on Friday said it should be permitted to avoid making an approximately $7 million golden parachute payment to Lubov Azria, the company’s former chief creative officer and wife of founder Max Azria, calling it a “sound exercise of business judgment.”
The fashion house, founded by Azria in 1989, filed for Chapter 11 protection in New York late last month with the hope of restructuring more than $500 million worth of debt. As part of its efforts to cut costs while continuing to operate, BCBG fired Azria on March 8, and last week moved to reject her employment agreement, saying it is in the best interest of the debtors’ estates.
In an effort to block the move, the Azrias filed an objection and an adversary complaint earlier this week, saying Lubov’s contract is integrated with a 2015 out-of-court restructuring agreement that ensured the couple’s long-term employment and a measure of continued control as part of giving up sole equity ownership to an outside investor. They complain that the employment agreement cannot be rejected unless the entire restructuring agreement is as well.
But in a response Friday, the retailer said that the contract in question is “unambiguous and contains an integration provision explicitly reflecting that the employment agreement stands alone.” BCBG said the court should issue a binding order approving the motion, but if it does agree to conduct an adversary proceeding, it should make sure the dispute gets resolved before a May 19 deadline for potential purchasers to bid on the company’s assets.
“Regardless of the procedural path the court chooses, the debtors believe the court should find that the rejection of an approximately $7 million golden parachute payment to Mrs. Azria is consistent both with the plain language of the contract as well as the sound exercise of business judgment,” the company said.
An attorney for the Azrias did not immediately respond to a request for comment Friday evening.
BCBG filed for Chapter 11 in February, just weeks after announcing the closure of 120 retail stores. Like other clothing retailers, BCBG has fallen on hard economic times due to "adverse macro-trends," including a general shift away from brick-and-mortar stores, a shift in consumer tastes, expensive leases, under-penetration of its wholesale and licensing segments, and expensive investments in overseas operations, the company's chief restructuring officer said in court filings.
The company entered bankruptcy saddled with somewhere between $500 million and $1 billion in liabilities, and assets valued between $100 million and $500 million. At the time of filing, it said it had obtained a commitment of $45 million in new financing to ensure normal operations during bankruptcy proceedings.
According to the retailer’s acting interim CEO Marty Staff, the company is taking steps "to address the shift in customer shopping patterns and the growth of online shopping" that will allow it to focus on partner relationships, e-commerce, selected retail locations, and wholesale and licensing arrangements.
Chief Restructuring Officer Holly Felder Etlin said that the debtors are in talks with their junior secured lenders — currently owed about $290 million under a term loan facility — to finalize the terms of a reorganization plan that contemplates either a sale of BCBG's assets to a third party or a debt-for-equity conversion.
The commitment for debtor-in-possession financing contemplates a timeline that would see the debtors emerge from Chapter 11 by the end of July, Etlin said.
Over the past three decades, the high-end purveyor of womenswear grew to more than 550 stores across the U.S., Canada, Europe and Japan. Though the company has enjoyed years of success, it has seen a downturn in net sales over the past few years, declining over 20 percent since 2014, from $785 million to approximately $615 million in the most recent fiscal year, according to Etlin.
The debtors are represented by Joshua A. Sussberg, Christopher J. Marcus, James H.M. Sprayregen and Benjamin M. Rhode of Kirkland & Ellis LLP.
The Azrias are represented by Thomas E. Patterson, Robert J. Pfister and Sasha M. Gurvitz of Klee Tuchin Bogdanoff & Stern LLP, and Martin D. Singer and Todd S. Eagan of Lavely & Singer PC.
The case is In re: BCBG Max Azria Global Holdings LLC, et al., case number 1:17-bk-10466, in the U.S. Bankruptcy Court for the Southern District of New York.
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