Whitehall creditors committee objects to 'unreasonably truncated' sale process

By Caroline Salls

Pittsburgh, July 9 - Whitehall Jewelers Holdings, Inc.'s official committee of unsecured creditors objected to the company's proposed sale process, arguing that the process is only designed to benefit the company's secured creditors, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

"When one views the sale motion in conjunction with the DIP financing motion, it is patently clear that the sale process and auction, and indeed these Chapter 11 cases, are being conducted solely for the benefit of the debtors' secured creditors," the committee said in the objection.

The committee said one of Whitehall's secured creditors is a company insider and an affiliate of the company's principal shareholder.

In addition, the committee said the sale process being proposed by Whitehall is "unreasonably truncated."

"It requires the forced-sale liquidation of all estate assets with no assurance of sufficient proceeds to pay administrative or priority expenses and no prospect for a recovery for unsecured creditors," the committee said in the objection.

"It is an abuse of the Chapter 11 process to file a case for the purpose of blessing the liens of alleged secured creditors and conducting an immediate forced-sale liquidation of collateral for their sole benefit, leaving nothing for unsecured creditors."

If the company's secured creditors refuse to fund a reasonable sale process, the committee said they should be forced to demonstrate that there is cause to lift the stay imposed by Whitehall's bankruptcy filing, prove the validity of their liens and prove there is cause to foreclose under state law.

As previously reported, Whitehall has requested court approval to either enter into a stalking horse agency agreement with Great American Group, LLC, Hudson Capital Partners, LLC and Silverman Jeweler Consultants Inc. to hold going-out-of-business sales at some of the company's stores or to solicit bids for a sale or investment transaction that would allow the company to continue its business as a going concern.

If the company chooses to proceed with the going-out-of-business sales, the sales would be required to begin no later than July 19.

Whitehall, a Chicago-based jewelry retailer, filed for bankruptcy on June 23. Its Chapter 11 case number is 08-11261.

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