SmileDirectClub files motions for dismissal, sale of assets

By Sarah Lizee

Olympia, Wash., Dec. 21 – SmileDirectClub Inc. filed motions for the dismissal of its Chapter 11 bankruptcy case and the sale of its assets with the U.S. Bankruptcy Court for the Southern District of Texas on Wednesday.

As a reminder, the company pivoted to a wind-down after being unable to reach a going-concern sale deal.

The debtors started winding down their global operations to maximize and preserve value for their estates on Dec 8. The company’s business is no longer operating, and its workforce was terminated.

SmileDirectClub said that while the debtors hoped to implement a wind-down of their estates through a liquidating plan, the debtors do not believe they are able to satisfy the applicable confirmation requirements.

However, the debtors engaged in arm’s-length negotiations with the debtor-in-possession lenders and the official committee of unsecured creditors regarding a transaction that would maximize value for stakeholders by concluding the cases quickly and providing for near-term distributions to the administrative claimants and the potential for further distributions to lower-priority unsecured creditors.

To that end, the parties have agreed to a settlement through which the debtors will sell all of their assets, other than specified claims and cash in a funded reserve account, to Cluster Holdco LLC, an entity of the DIP lenders.

As consideration for the sale, the DIP lenders will provide a credit bid of their roughly $28 million in DIP claims, cash between $4.65 million and $7.65 million, and establishment and funding of a creditor trust to investigate and potentially prosecute specified claims up to and limited by available insurance.

The debtors estimate that administrative claims total about $17.5 million.

The proposed settlement provides for the potential for additional distributions to the debtors’ creditors depending on the outcome of any specified claims pursued by the creditor trust and further liquidation efforts up to $3 million.

The administrative claimants are expected to recover at least about 22.8% on account of their administrative claims based on the initial distribution resulting from the global settlement, with potential significant upside stemming from available D&O insurance and proceeds from the sale of assets, the company said.

SmileDirectClub is a Nashville-based oral care company. It filed bankruptcy on Sept. 29 under Chapter 11 case number 23-90786.

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