Former Gymboree indenture trustee claims plan strips creditor rights

By Caroline Salls

Pittsburgh, March 2 – The disclosure statement for the Chapter 11 plan filed by Gemstone Solutions Group, Inc., formerly Gymboree Group, Inc., drew an objection Friday from the indenture trustee for the company’s 9 1/8% senior notes due 2018, according to a filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Specifically, indenture trustee and creditor Deutsche Bank Trust Co. Americas said in its objection that it filed a complaint against Gemstone and some of its employees and management in August 2019 regarding the alleged improper conversion of in excess of $1.95 million and transfer of those funds to a collateral account for secured creditors.

The trustee said those funds were expressly held in reserve for class 5 creditors under the confirmation order and plan in Gymboree’s previous Chapter 11 cases.

However, Deutsche Bank said the Gemstone debtors fail to provide the facts related to the lawsuit and the possible rights of class 3a creditors under the current plan as a result of the complaint.

“On the eve of filing these cases, the debtors’ senior management, including so-called bankruptcy specialists, with the complicity of current bankruptcy counsel, made the conscious decision to violate this court’s confirmation order, and the underlying plan, in the prior cases,” the objection said.

“They did this by breaching their unequivocal obligation to make a required payment of in excess of $1.95 million from a special reserve account to class 5 creditors upon the completion of the claim reconciliation process.

The trustee said the decisions of Gemstone’s management and counsel not to take steps to remedy their failure to hold the funds in trust as required by the previous plan, to hold the funds in reserve until after filing the present Chapter 11 cases and to seek a ruling on the ownership of the funds before transferring them to the secured creditors, “are all inexplicable, inexcusable and deliberate violations of the prior confirmation order and prior plan, subjecting all who were complicit to civil liability.”

Deutsche Bank said what it called the “cover-up” plan provides class 3a creditors with no recovery and deprives them of their rights.

Gymboree is a children’s apparel specialty retailer based in San Francisco. The company filed bankruptcy on Jan. 16, 2019 under Chapter 11 case number 19-30258.

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