Not much is left of the old Barneys in the new year, but the accounting to creditors past still continues.
The Barneys New York liquidation sales are moving to their final phase, with in-store sales expected to run until the end of the month or through early February, according to a representative for B. Riley Financial Inc., one of Barneys’ debtor-in-possession lenders after it filed for Chapter 11 protection in August. B. Riley also teamed with Authentic Brands Group in its $271.4 million deal to buy Barneys’ assets, which closed in November.
The liquidation sales, which are being overseen by B. Riley subsidiary Great American Group, have halted on Barneys’ web sites barneys.com and Barneyswarehouse.com, with the rest of their inventory being transferred into the closing stores, according to B. Riley’s representative.
A licensing agreement with ABG will allow Hudson’s Bay Co.’s Saks Fifth Avenue to refresh its contemporary lines with Barneys branding, as the future of its current physical presence, including the Madison Avenue flagship, remains unclear.
Separately, another piece of the saga is playing out: the old Barneys predecessor is still in bankruptcy court in Poughkeepsie, N.Y., haggling with past creditors. A sticking point at this stage, which is fairly common in bankruptcy cases, is the question of whether vendors and suppliers who provided the company with goods and services during the bankruptcy will get paid, and how much.
Unlike unsecured creditors, which includes vendors who were owed money from before Barneys’ bankruptcy filing and cannot expect to recover much, this group, known as administrative creditors, is entitled under the bankruptcy code to be repaid in full.
In theory, the bankruptcy court does not have to approve a company’s Chapter 11 plan to end its bankruptcy proceedings until those administrative creditors — attorneys and other professionals, goods vendors, companies that provided courier services, media and ad services, for instance — are paid. The idea is that all these companies helped sustain various aspects of the retailer’s life during the bankruptcy and that without them the company would not have been able to operate or have anything to sell during the process.
But the reality often is that the shell of the bankrupt estate — especially after its assets have been sold off — may not have enough left to pay off its administrative debts. What follows then is a series of claims and negotiations with creditors to pay them off partially. In the Barneys case, many administrative creditors are expected to file their claims in January.
“They need to understand the universe of administrative expense claims, for the purposes of considering whether the bankruptcy plan can be confirmed,” said Patrick Collins, partner at Farrell Fritz P.C. in its bankruptcy and restructuring and commercial litigation practices. The firm represents clients in the Barneys case.
Fashion brands that shipped to Barneys during the bankruptcy had the option of being paid out of a $40 million pool of funds that the DIP lenders said they made available, and which they referred to as a “consignment facility.” During the bankruptcy, vendors were either offered cash in advance, or terms as negotiated with the company’s executives, or given the option of using the so-called consignment line.
But as is often the case in retail bankruptcies, vendors’ confidence faltered, gumming up the influx of goods. During the first few weeks of its bankruptcy alone, between Aug. 6, when it filed for Chapter 11 protection, to Aug. 31, the company reported in court filings that it incurred a net loss of roughly $16.3 million.
In late December, the court granted a series of fee applications, including nearly $3 million to Kirkland & Ellis LLP, which has represented Barneys in the bankruptcy proceedings, for its work from Aug. 6 to Sept. 30.
Unsecured creditors including top brands such as The Row, Chloé and others that were owed money from before the bankruptcy, can theoretically expect to recoup little if anything, as is usually the case in bankruptcies. But what usually follows at this stage is some level of negotiation between the Barneys estate, administrative creditors and unsecured creditors, to parse out the claims, and who gets repaid how much.
“Everything in bankruptcy takes place in multiple paths at the same time,” said Joseph Moldovan, chair of the business solutions, restructuring and governance practice at Morrison Cohen LLP, who has clients in the Barneys case.
“Negotiations go on on a simultaneous basis, [because] bankruptcy is a multitracked process, so the parties will be working on establishing the amounts owed, the amounts distributed, and all of that,” he said.