Neiman Marcus in The Shops at Hudson Yards is close to declaring bankruptcy due to the effects of the COVID-19 pandemic forcing closures across America, New York, NY May 1, 2020. (Anthony Behar/Sipa USA)(Sipa via AP Images)

Neiman Marcus took a significant step forward toward its goal of having a reorganization plan confirmed by Sept. 15. 

On Thursday, the retailer told a Texas bankruptcy court that it tentatively resolved the long-running dispute with unsecured creditors over Mytheresa, the German luxury e-commerce site it acquired in 2014. Since before Neiman’s bankruptcy filing in May, and throughout the proceedings, the retailer’s transactions around 2018 involving its Mytheresa assets have been a source of controversy that had cast a shadow over how the retailer would reorganize. 

At a roughly four-hour hearing to determine the retailer’s next steps as it marches toward a resolution of its Chapter 11 journey, U.S. Bankruptcy Judge David Jones accepted the settlement as it was proposed, with the understanding that some details were still being worked out. The settlement still requires final approval. 

On Thursday, Jones also signed off on Neiman’s disclosure statement related to its reorganization plan, which technically gives the retailer the green light to send its plan out to creditors to solicit their votes on the proposal. Neiman’s advisers have indicated they intend to start the solicitation process some time next week. 

Chad Husnick of Kirkland & Ellis LLP, who represents Neiman’s, told the court the retailer intends to move as quickly as possible to tie up loose ends and get to a consensus on a reorganization plan by its target dates. The company had entered into bankruptcy with the goal of having a reorganization plan confirmed within four months.   

“The facts that we told you, your honor, on the very first days of these cases, haven’t really changed,” he told the court. “We told you that retailers in Chapter 11 are not a fine wine, they don’t age well. And so we want to keep these cases on track.”  

The proposed settlement terms are meant to address concerns raised by unsecured creditors by providing some $10 million to a pool of recoveries for general unsecured claims. In addition, Neiman Marcus Group Inc., the parent company controlled by its leveraged buyout sponsors Ares Management Corp. and Canada Pension Plan Investment Board — which purchased the retailer for $6 billion in 2013 — will put in 140 million shares of series B preferred stock in Mytheresa into the retailer’s bankruptcy estates, which would also go toward the recovery pool for general unsecured claims. Estimates of the value of those shares are still being determined. 

The settlement includes other terms, whose significance to creditors is still being hashed out. 

The dispute over Mytheresa had such a significant influence over Neiman’s plans to emerge from bankruptcy because it got to questions at the heart of every Chapter 11 — what a bankrupt company’s assets are truly worth, and how much of that value is actually available for creditors to recover.

Unsecured creditors in the case have argued that the Mytheresa transactions before the bankruptcy had essentially moved a valuable Neiman’s asset out of its capital structure, preventing creditors from realizing any portion of that value. 

The conflict led to parallel investigations during the bankruptcy proceedings, conducted by the unsecured creditors committee, and by a “disinterested manager” that Neiman Marcus Group Ltd. LLC had designated in the case. According to a preliminary report by the creditors committee that was unsealed this month, a litigation expert hired by the committee found that Mytheresa was worth roughly $822 million at the time that it was transferred out of Neiman’s. 

The resolution of the dispute, which paves the way for a swift confirmation of Neiman’s plan, also bodes well for the retailer’s executives.

On Thursday, its attorneys made the case that eight leaders on the management team — including chief executive officer Geoffroy van Raemdonck; chief merchant officer Svetlana Todorovich, and chief operating officer Chris Sim — should be approved to get a bonus packaging totaling potentially up to $10 million for meeting certain targets in the case, including the company’s performance and its navigation of bankruptcy milestones. 

The U.S. Trustee in the case, Hector Duran, had opposed the motion, arguing that the retailer had not shown the bonuses were justified under the circumstances. Duran also highlighted bonuses that the top executives, including van Raemdonck, had already received shortly before the company’s bankruptcy. In February alone, van Raemdonck received bonus payments totaling $4 million, according to court documents. 

But ultimately, Jones approved the motion Thursday evening, musing that it was a customary cost of business for a major company attempting to emerge from bankruptcy. 

“As I look at this, no one can argue with the suggestion that you want the best talent that you can obtain, and talent has a price,” Jones said at the hearing. 

“It is a lot of money, but this is a big company, with a lot of complex issues and thousands of employees,” he said.