BCBG To Resolve Azria Contract Fight Before Bid Deadline
Bankrupt women's apparel company BCBG Max Azria Group Inc. in New York bankruptcy court on Tuesday committed to resolve an adversary action brought against it by company founder Max Azria and his wife Lubov, BCBG's former chief creative officer, over the termination of her employment agreement before a May bidding deadline.
The fashion house, founded by Max 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 Lubov Azria on March 8, and two weeks ago moved to reject her employment agreement, saying it is in the best interest of the debtors' estates. The agreement provides for an approximately $7 million golden parachute payment that the debtors aim to have rejected.
In an effort to block the move, the Azrias filed an objection and an adversary complaint last week, saying Lubov Azria'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 claim that the employment agreement cannot be rejected unless the entire restructuring agreement is, as well.
The company, which believes that the contract in question contains an integration provision reflecting that the employment agreement stands alone, seeks to resolve the dispute before a May 19 deadline for potential purchasers to bid on the company's assets. Counsel for both parties said Tuesday that they seek to resolve the dispute quickly and that they have engaged in settlement discussions.
"We would love to try to resolve those issues and allow the company to go on responsibly and my clients to go on responsibly," said Thomas E. Patterson of Klee Tuchin Bogdanoff & Stern LLP, an attorney for the Azrias.
In addition to scheduling to resolve the dispute to accommodate BCBG's Chapter 11 timeline, the debtors on Tuesday received final approval to obtain post-petition financing, which includes $45 million in new money.
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 has said in court filings.
The company entered bankruptcy saddled with between $500 million and $1 billion in liabilities, and assets valued between $100 million and $500 million. At the time of filing, BCBG said it had obtained a commitment of $45 million in new financing to ensure normal operations during bankruptcy proceedings.
According to acting interim CEO Marty Staff, the retailer 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, ecommerce, 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 more than 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.
REPRINTED WITH PERMISSION FROM THE MARCH 29, 2017 EDITION OF LAW360 © 2017 PORTFOLIO MEDIA INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED. WWW.LAW360.COM
