Sports Authority committee asks court to convert case to Chapter 7

By Caroline Salls

Pittsburgh, July 22 – Sports Authority Holdings, Inc.’s official committee of unsecured creditors asked the U.S. Bankruptcy Court for the District of Delaware to convert the company’s Chapter 11 bankruptcy case to Chapter 7, according to a motion filed Friday.

The committee said the Sports Authority Chapter 11 cases have been run on an administratively insolvent basis since their inception, but the company said earlier in the case that that may not be the case because its asset sale process had not yet run its course.

“Fast forward two months and the results are known and clear: These chapter 11 cases are knowingly administratively insolvent, and quite simply, failures,” the committee said.

“The outcome of these Chapter 11 cases should come as no surprise since these cases have been mired in contentious litigation from day one.”

The committee said Sports Authority and its term loan lenders sought approval of a settlement “that rewards the term loan lenders with a blanket surcharge waiver in exchange for paying some administrative claims of their choosing.”

However, the committee said neither party pointed out to the court that if the settlement is approved, the Sports Authority estates will be rendered administratively insolvent by at least the $50 million of unpaid 503(b)(9) claimants and other unpaid post-bankruptcy administrative creditors excluded from the initial debtor-in-possession financing budget and the company’s wind-down budget.

“The debtors and the term loan lenders are now effectively asking this court to write section 503(b)(9) out of the Bankruptcy Code by asking this court to place its imprimatur on a scheme by the debtors and their secured creditors to continually use the Chapter 11 process to liquidate the secured creditors’ collateral without ever having to ‘pay the freight’ of one disfavored, but statutory equal, category of administrative expenses arising under section 503 of the Bankruptcy Code,” the motion said.

“Given the lack of any prospect for rehabilitation, the chronic administrative insolvency of these cases, and in order to conserve what little value may remain for the benefit of unpaid administrative creditors, these Chapter 11 cases should be converted.”

Sports Authority, based in Englewood, Colo., is a sporting goods retailer. It filed for bankruptcy on March 2. Its Chapter 11 case number is 16-10527.

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