Barneys New York’s former vendors can breathe a little easier.
In a hearing on Tuesday, a New York bankruptcy court rejected efforts by a joint venture linked to lender B. Riley Financial Inc. to pursue lawsuits against Barneys’ previous vendors that had been paid in the lead-up to the luxury retailer’s Chapter 11 filing in August. The venture, made up of GA Retail Inc., an indirect subsidiary of B. Riley, and Tiger Capital Group LLC had been arguing they could file such suits, known as “avoidance actions.”
Creditors, many of whom were owed payments for their work before the bankruptcy and even during it, had fought against the idea of potentially also losing some of what they had already been paid.
Avoidance actions can be controversial for that reason, although, in principle, they exist to help a trustee appointed in a bankruptcy case distribute the losses among creditors more fairly. The creditors had argued that in this case, allowing this B. Riley-linked venture to pursue such suits would contradict that mission, and only hurt vendors who had been paid.
“The unsecured creditors hopefully can now close their books on Barneys and rest easy that they will not be sued for a preference in these cases,” said Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, an attorney for the creditors’ committee, commenting Tuesday on the outcome.
In the Barneys case, the conflict surrounding these types of avoidance suits had surfaced around the time of the October hearing on the $271.4 million sale of Barneys’ assets to Authentic Brands Group and B. Riley. During the tumultuous sale hearing, in which there was also the faint lingering hope that a going concern buyer might step up at the last minute, a secondary controversy played out about whether the asset purchase agreement gave B. Riley the ability to pursue avoidance actions against Barneys’ creditors.
At one point, the dispute on that issue even briefly threatened to derail the sale hearing and push it to the following week. But the ABG-led buyers ultimately decided against any further delays, to proceed with the sale and to allow B. Riley to address the question down the road.
Bankruptcy Judge Cecelia Morris recounted the drama again in Tuesday’s hearing, and indicated that her thinking on the issue hadn’t changed since.
“Just to be clear, the exact same scenario that we have today, took place at the sale, took place at confirmation, and this court has not granted standing,” Morris said. “Today, I’m denying standing.”
GA Retail and Tiger Capital had argued that the Barneys asset purchase agreement with ABG and B. Riley had included language about avoidance actions for a reason. In the 90 days before its bankruptcy filing, Barneys had paid creditors about $86 million. GA Retail and Tiger had argued to the court that the ability to target these payments through avoidance actions were among the Barneys assets purchased at the bankruptcy sale. They said they needed to pursue avoidance actions to get money to help fund the $27 million in wind-down costs they were obligated to pay under the sale deal. They estimated the value of the avoidance actions they were trying to pursue at about $8 million.
“Looking at this transaction as a whole, the sale absolutely considered avoidance actions,” Kara Casteel, a partner at ASK LLP, and an attorney for GA Retail and Tiger Capital, told the court Tuesday.
Casteel declined to comment on the decision by Morris.