Picture People committee sues Monroe lenders for role in bankruptcy

By Caroline Salls

Pittsburgh, Dec. 12 – The official committee of unsecured creditors for TPP Acquisition, Inc., which does business as The Picture People, filed a lawsuit Friday against several Monroe Capital entities, as well as TPP Holdings, LLC and TPP Operating, Inc., according to a filing with the U.S. Bankruptcy Court for the Northern District of Texas.

“This is a case about how the debtor’s prepetition secured lenders – the Monroe lender defendant – orchestrated control over all facets of the debtor’s capital structure and business operations in order to enrich themselves and acquire the valuable assets of the debtor over the legitimate rights and expectations of, and to the detriment of, the debtor and its unsecured creditors,” the complaint said.

The committee said the Monroe lender defendants exerted substantial control over TPP Acquisition through various methods, including forcing the company’s previous owners to assign 100% of its stock to their affiliate.

In addition, the committee said the lenders forced TPP Acquisition “to take actions detrimental to the debtor and all of its unsecured creditors” for the lenders’ sole benefit.

Advance aftermath

According to the complaint, the Monroe lender defendants have been secured lenders of the company since they made an initial $17 million advance in 2012 for the sole purpose of facilitating TPP Acquisition’s dividend recapitalization that provided a dividend to equity of $18.9 million and paid off insider debt of roughly $2 million.

The committee said the company received no value from Monroe lender defendants’ advances and was insolvent at the time of or rendered insolvent by these transactions.

The committee said the sale left only unliquidated litigation claims for TPP Acquisition creditors to realize any recovery.

As a result, the committee said the Monroe lenders’ initial secured claim against TPP Acquisition should be avoided as a constructive fraudulent transfer.

Equity assignment

In addition, the committee said the Monroe lender defendants used asserted credit agreement covenant defaults in late 2014 to force the company’s previous owner to assign to them 100% of the equity in TPP Acquisition.

The committee said the lenders assigned their right to receive the equity to TPP Holdings, an admitted affiliate of the Monroe lender defendants. After the lenders, through TPP Holdings, acquired the equity, the committee said the lenders contributed $20.9 million in capital to the company at a time that it was insolvent and “no third-party lender would make such a loan.”

The creditor group said these funds should be recharacterized as equity investments, rather than debt owed by TPP Acquisition.

‘Alter ego’

“The Monroe lender defendants’ actions as lender, shareholder, and control person resulted in substantial harm to the debtor and its other creditors,” the complaint said.

“In fact, the Monroe lender defendants’ control was so pervasive that they should be deemed the alter ego of the debtor, resulting in the Monroe lender defendants being liable for all claims asserted against the debtor, currently estimated at approximately $19 million to $21 million.”

The committee said it is seeking damages for the defendants’ alleged misconduct, as well as assurance that the defendants “are not permitted to abscond with substantially all of the estate’s assets without paying the cash amounts required under the court’s prior orders.”

Picture People is an operator of professional portrait studios. The company filed for bankruptcy on Sept. 2 under Chapter 11 case number 16-33437.

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