Sears exits Chapter 11 bankruptcy three years after plan confirmation

By Sarah Lizee

Olympia, Wash., Oct. 31 – Sears Holdings Corp.’s Chapter 11 plan, which was confirmed on Oct. 15, 2019, became effective on Saturday, according to a notice filed with the U.S. District Court for the Southern District of New York.

In August, Sears secured approval of a $175 million settlement with the former chief executive officer of the company and certain other individuals.

In April 2018, Sears filed a lawsuit against Edward Scott “Eddie” Lampert, ESL Investments, Inc. and several ESL affiliates, including shareholders, lenders and directors.

Sears claimed that Lampert, its long-time controlling shareholder, chairman and CEO, along with other individuals, transferred billions of dollars of the company’s assets to its shareholders for “grossly inadequate consideration or no consideration at all.”

The company said the transfers were designed to hinder, delay and default creditors and/or were made when Sears was insolvent and lacked the capital needed to continue its operations and to repay its billions of dollars in debt.

Sears said that Lampert and the other insider defendants allegedly knew from 2014 through Sears’ bankruptcy filing in 2018 that the company was insolvent and that it “had no plan to return to profitability.”

According to the settlement, $175 million was to be paid to the debtors and then distributed to creditors. The amount consists of a roughly $125.63 million director & officer insurance payment, a $41.88 million original action defendants payment, and a $7.5 million public shareholder payment.

The proceeds from the settlement were received on Oct. 3 and Oct. 4, according to the notice.

Plan terms

Sears’ modified second amended plan called for a winddown of the remaining assets of the debtors’ estates, which included primarily litigation claims.

In addition, the plan includes of inter-estate and intercreditor issues and a global settlement with the official committee of unsecured creditors that allowed the committee to designate three of the five members of the liquidating trust board and grants consultation and consent rights in exchange for its support of the plan.

On the plan effective date, all of Sears’ assets were to be transferred to the liquidating trust and the debtor legal entities were to be dissolved.

Under the plan, priority claims were to be paid in full in cash.

Holders of secured claims were to receive the net cash proceeds from the collateral securing the claims.

The Pension Benefit Guaranty Corp. was to receive a beneficial interest in the liquidating trust, entitling it to the first $97.5 million of specified net proceeds following payment in full of senior claims. The PBGC was also to receive a share of general unsecured claim recoveries.

Holders of general unsecured claims were to receive a share of net asset sale proceeds, wind-down account proceeds and proceeds from causes of action and a credit bid release consideration, all following payment in full of senior claims.

Holders of intercompany interests and subordinated securities claims were to receive no distribution.

Sears is a retailer based in Hoffman Estates, Ill. The company filed bankruptcy on Oct. 15, 2018 under Chapter 11 case number 18-23538.

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