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U.S. Trustee Objects to BCBG Ch. 11 Plan Details

The U.S. Trustee has filed an objection in New York bankruptcy court to BCBG Max Azria Group Inc.’s disclosures on its Chapter 11 plan, saying it unjustifiably excludes creditors from the approval process and has overbroad liability releases.
Trustee William Harrington on Tuesday objected to the disclosure the women's apparel company filed last month on its reorganization plan, saying that the statement does not explain why some classes of creditor are being treated as unimpaired and excluded from the approval process and why it includes liability releases applying to nondebtor third parties and nonconsenting creditors.
“Merely because the debtors’ choose to characterize these classes as unimpaired, however, does not mean that they are unimpaired,” he said. “The unimpaired classes are clearly impaired as the legal rights of every holder of an ‘unimpaired claim’ will be undeniably altered should releases be imposed against each holder without consent.”
The fashion house, founded by Max Azria in 1989, filed for Chapter 11 protection in New York in March, with the hope of restructuring more than $500 million worth of debt.
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. Although the company has enjoyed years of success, it has seen a downturn in net sales over the past few years, declining more than 20 percent since 2014, from $785 million to approximately $615 million in the most recent fiscal year, according to court documents.
The disclosure filed by the company in April classes parties with “secured tax claims,” “other secured claims,” “other priority claims,” “intercompany claims” and “intercompany interests” as unimpaired by the plan and not entitled to a vote on its approval, but Harrington argued that the plan’s releases and exculpations would impair their rights.
“Simply put, the disclosure statement does not provide any information that would explain how under the Bankruptcy Code the plan can be confirmed by the court despite the fact that not one of these five unimpaired classes of creditors will be given an opportunity to vote on the plan, and ipso facto, will not be given the opportunity to vote on the releases and exculpations contained in the plan,” he said.
Harrington also said that the plan includes liability releases for third parties for matters not related to the debtors and would impose releases on impaired nonconsenting creditors, which he argued the Second Circuit has held should only be done on “rare and exceptional circumstances.
“The disclosure statement provides no information that there is anything unusual about this case that would justify such extraordinary relief,” he said. “Not only are the proposed releases extremely overbroad, but other than vague assertions, there is no information establishing that the released parties provided consideration for the releases.”
Counsel for BCBG did not immediately respond to requests for comment on Friday.
Representatives for the U.S. Department of Justice declined to comment on Friday.
The U.S. Trustee is represented by Brian S. Masumoto of the Department of Justice.
BCBG is represented by Joshua A. Sussberg, Christopher Marcus, James H.M. Sprayregen and Benjamin M. Rhode of Kirkland & Ellis LLP.
The case is In re: BCBG Max Azria Global Holdings LLC et al., case number 1:17-bk-10466, both in the U.S. Bankruptcy Court for the Southern District of New York.