German luxury web site Mytheresa was acquired by Neiman Marcus in 2014.

The clock is ticking on the Neiman Marcus bankruptcy, as the retailer faces mounting pressure to resolve a dispute over the controversial transfer of Mytheresa.

Fundamentally, the question before the bankruptcy court now is whether Neiman’s unsecured creditors, lower in the hierarchy of who gets repaid in a bankruptcy, can sue for monetary recoveries related to the transfer of the Mytheresa web site in 2018.

These creditors oppose the idea of a reorganization plan that would release Neiman’s leveraged buyout sponsors — Ares Management Corp. and Canada Pension Plan Investment Board — from liability for claims related to the Mytheresa transaction. Creditors have argued that the transaction was designed to keep what they estimate was a $1 billion asset out of their reach.  

For Neiman’s restructuring plan to be confirmed, it would likely need some sort of resolution with creditors, and soon, in light of the fast-approaching deadlines in the case. A disclosure statement on the plan must be confirmed next week, not leaving Neiman’s much time even as lawyers for Ares, CPPIB and unsecured creditors say settlement talks are ongoing.

Meanwhile, on the eve of a key hearing on the retailer’s reorganization plan and disclosure statement, the Texas bankruptcy court overseeing the case has ordered dueling reports filed in the case about the Mytheresa transaction to be made public. 

At a hearing on Thursday, U.S. Bankruptcy Judge David Jones approved the unsealing of reports filed by the unsecured creditors committee, which had spent about six weeks investigating the circumstances behind the retailer’s handling of the German luxury web site. A counter report filed Wednesday night by Ares and CPPIB will also be unsealed. 

The committee’s findings and the counter report by Ares and CPPIB have bearing on the company’s proposed restructuring plan. A hearing on a disclosure statement related to the plan, which has already been postponed for a week in order to make time for the court to consider these reports, is currently scheduled to take place on Friday afternoon.

On Thursday, Jones expressed concerns about the number of sealed reports filed in the case in recent days, saying that keeping court records sealed generally goes against the public interest, and can undermine confidence in the bankruptcy process.

“You know that I am not a big fan of having lots of things filed under seal on a court docket,” he said at the hearing. “I think it creates distrust in the process, it creates suspicion. I’m just a big fan of being as transparent as I possibly can. If I read it, I like for the world to see what I read.” 

The conflict over the Mytheresa transfer, which has played out in litigation since before the bankruptcy proceedings, has continued to cast a shadow over the bankruptcy.

Essentially, some creditors have argued that Neiman Marcus, under the supervision of Ares and CPPIB, had transferred a valuable asset out of its corporate structure in 2018 for what they argue was virtually no consideration in return. In previous court cases, Ares has disputed this characterization, and has contended that the transaction was within the scope of its reasonable business judgment. 

At this point, it appears that the unsecured creditors have some support in their view that they should be able to pursue claims related to the Mytheresa transfer. Scott Vogel, a “disinterested manager” that Neiman Marcus Group LTD LLC had designated earlier this year to investigate issues in the case including the Mytheresa transfer, appears to share some of the creditors’ perspectives.

On Thursday, Vogel’s attorney Brian Lennon, a partner at Willkie Farr & Gallagher LLP, told the court that Vogel has himself concluded that there are “viable claims that we believe would likely survive a motion to dismiss [the claims]… and that the estates definitely have at least a viable constructive fraudulent conveyance cause of action against Neiman Marcus Group Inc. and potentially other parties.” 

That just means that a party in the case could bring a viable lawsuit over the issue, not necessarily that it would succeed on the merits. 

In the meantime, the parties are still continuing to negotiate on a possible resolution, they told the court Thursday.

Representatives for Ares, CPPIB and Neiman Marcus declined to comment Thursday. An attorney for the creditors committee did not respond to a request for comment.