NEW YORK — General Electric Capital Corp. has settled a lawsuit filed last year by the unsecured creditors committee of the now defunct Montgomery Ward unit for $80 million.
The parties reached the settlement last Friday, and are seeking Delaware bankruptcy court approval of the agreement, according to Cathy Hershcopf, an attorney at Kronish Lieb Weiner & Hellman, which represents the committee.
Because of pending approval, it could not be immediately ascertained what the ultimate payout will be to individual creditors. Under the terms of the agreement, sources said, GE will pay $58 million in cash and waive claims against Ward’s in the bankruptcy that are worth $250 million. The waiver increases the payout to unsecured creditors by $22 million.
Calls to GE seeking comment weren’t returned.
As reported, Ward’s filed for Chapter 11 in Delaware in December 2000, its second filing in three years, and promptly said it was liquidating operations. GE Capital bought Ward’s in 1999 out of the earlier bankruptcy.
In comparison to the settlement, GE Capital in a reorganization plan originally proposed to pay unsecured creditors just $26.5 million, or 20 cents on the dollar. The committee rejected the proposal and filed a lawsuit in January 2002 in Delaware.
The lawsuit sought at least $500 million in damages, alleging that GE “intentionally misled creditors.” Specifically, it charged that the lender manipulated the retail firm’s financial structure and the timing of its second bankruptcy filing to “benefit their own credit card and marketing businesses” and maximize certain tax advantages. It also sought another $500 million as a restitution claim.
The committee charged creditors were “duped into extending hundreds of millions of dollars in unsecured credit to the debtors,” and that GE Capital made millions in loans to Ward’s secured by the retailer’s real estate, creating the impression that GE Capital was supporting Ward’s.
The lawsuit said that the effect of the loans was to delay Ward’s bankruptcy while at the same time “diminish — by tens of millions of dollars — the value of Ward’s estate.”
Lawrence Gottlieb of Kronish Lieb, lead counsel for the committee, said in a statement, “This significant settlement should be a wake-up call to companies that think they can try to secure economic benefits for themselves at the expense of unsecured creditors.”