School Specialty creditors file suit to recover $1.19 million transfer

By Caroline Salls

Pittsburgh, April 3 - School Specialty, Inc.'s official committee of unsecured creditors filed a lawsuit on April 3 in an attempt to avoid and recover a $1.19 million early payment fee transfer made to Bayside Finance, LLC, H.I.G. Bayside Capital and/or H.I.G. Bayside Debt & LBO Fund II, LP by School Specialty, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

The committee said the Bayside entities alleged that the early payment fee was due in connection with a $3 million term loan prepayment.

However, the committee said the make-whole provision of the term loan credit agreement under which the allegedly fraudulent transfer was made is an unenforceable provision under New York law.

"Because the fraudulent transfer was not a payment on account of a valid and legally enforceable antecedent debt, School Specialty did not receive reasonably equivalent value or fair consideration in exchange for it," the committee said in its lawsuit.

In addition, because the fraudulent transfer was made under an unenforceable provision of the term loan agreement, the creditor group said Bayside would be unjustly enriched if permitted to retain the payment.

School Specialty, a Greenville, Wis.-based education company, filed for bankruptcy on Jan. 28. The Chapter 11 case number is 13-10125.

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