The founder of BCBG Max Azria and other creditors filed court papers on Monday saying that the bankrupt fashion company's proposed restructuring plan should be rejected for undervaluing costs to keep up existing contracts and claims, and for including nonconsensual litigation releases for nondebtor entities.
Max Azria, the eponymous founder of the distressed women’s fashion house, told a New York bankruptcy judge that the company’s Chapter 11 plan, which rests on a $131 million sale of the debtors’ intellectual property, stores and other assets, cannot be approved because, among other things, it provides certain third-party lenders a veiled mechanism to dodge potential creditor litigation and impermissibly discharges BCBG from legal claims.
Azria filed the objection with his wife, Lubov Azria, BCBG’s former chief creative officer, who is currently fighting to recover $5 million in severance compensation from the bankrupt estate. The couple claim that the clothing retailer is trying to push forward a plan that does not give certain impaired creditors like themselves the option to opt out of releasing affiliated third parties like secured lender Guggenheim Partners from fallout litigation.
“The plan seeks to compel at least three categories of holders of claims and interests to grant nondebtor releases without providing such holders with any consent mechanism or election whatsoever,” the objection said.
Additionally, the pending plan must be rejected because it proposes a distribution scheme that requires the debtors to substantively consolidate even though the company has not stipulated to do so, impermissibly releases creditors’ set-off rights, and does not provide sufficient cure amounts for assumed property leases, the Azrias said.
In the same vein, groups of BCBG’s vendors and landlords also objected to the company’s Chapter 11 plan, saying that proposed assignments do not cure all contract defaults or assumed agreements between the company and its creditors.
In one objection, SAP Industries Inc. complained that the women’s apparel merchant owes it nearly $1.2 million under a software licensing agreement that it aims to assign to one of the business purchasers, but it has valued the claim at zero.
An attorney for the debtors did not immediately respond to a request for comment Tuesday.
The fashion house, founded by Max Azria in 1989, had filed for Chapter 11 protection 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 enjoyed years of success, it saw 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.
Under a proposed sale, New York-based Marquee Brands — a brand acquisition, licensing and development company — would acquire the rights to BCBG’s intellectual property for $108.1 million, while Hong Kong-based apparel, footwear and fashion accessories company Global Brands would take over marketing, sale and distribution of BCBG brands along with the debtor's wholesale operations, online sales platform and approximately 20 stand-alone brick-and-mortar locations for $23 million.
BCBG is represented by Joshua A. Sussberg, Christopher 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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