Former Ascena Retail’s Chapter 11 plan voided by federal judge

By Sarah Lizee

Olympia, Wash., Jan. 18 – Mahwah Bergen Retail Group, Inc., formerly Ascena Retail Group, Inc., had its previously confirmed Chapter 11 plan voided by a federal judge in the U.S. District Court for the Eastern District of Virginia, according to court documents filed Tuesday.

The plan was confirmed by the U.S. Bankruptcy Court for the Eastern District of Virginia on Feb. 25, 2021, as previously reported.

On Tuesday, the district court vacated the confirmation order and voided the third-party releases contained in the plan, calling them “unenforceable.”

“The sheer breadth of the releases can only be described as shocking,” the federal judge said in an opinion filed Tuesday.

“They release the claims of at least hundreds of thousands of potential plaintiffs not involved in the bankruptcy, shielding an incalculable number of individuals associated with debtors in some form, from every conceivable claim – both federal and state claims, for an unspecified time period stretching back to time immemorial.”

The judge said the releases “close the courthouse doors to an immeasurable number of potential plaintiffs,” while also protecting corporate insiders who had no role in the reorganization in the company.

The district court also had concerns regarding the “overly broad” exculpation provision in the plan, but said that, unlike the third-party releases that must be voided and severed from the reorganization plan, redrafting can salvage the exculpation provision on remand.

As such, the case has been remanded to the bankruptcy court to redraft the exculpation provision. The company can then proceed with confirmation of the plan without the voided third-party releases.

The court also ordered that the chief judge of the bankruptcy court reassign the case on remand to another bankruptcy judge outside of the Richmond division.

Background

In December of 2020, Ascena completed the sale of its Ann Taylor, LOFT, Lou & Grey and Lane Bryant brands to Premium Apparel LLC, an affiliate of Sycamore Partners, for a purchase price of $540 million. Ascena also sold its Tween Brands, Inc. Justice business to Bluestar Alliance LLC for about $90 million, and its Catherines assets to FullBeauty Brands Operations, LLC for $40.8 million.

A plan administrator was to wind down and dissolve the debtors’ estates following the effective date.

Under the plan, administrative claims, DIP ABL facility claims, DIP term facility claims and priority tax claims were to be paid in full.

Holders of other secured claims were to receive payment in full in cash, delivery of the collateral securing their claims or have their claims reinstated.

Holders of other priority claims were to be paid in full in cash.

Holders of ABL claims would either receive payment in full in cash and replacement or cash collateralization of all issued and undrawn letters of credit under the ABL credit agreement, or receive the collateral securing their claims.

Holders of term loan claims were to receive their pro rata share of the net lender distributable cash from the sale. Had the sale not closed by the effective date, holders of term loan claims would have received their pro rata share of the loans under a second-out exit term loan facility, 55.1% of new common stock less the percentage of new common stock distributed as an equity premium, subject to dilution on account of the management incentive plan, and excess cash.

Holders of general unsecured claims were to receive their pro rata share of the GUC trust net assets, which is equal to $7.25 million and 100% of the first $1 million and 50% of the next $4 million of proceeds received by Ascena resulting from a payment card interchange fee and merchant discount antitrust litigation.

Holders of intercompany claims, intercompany interests and interests in Ascena were to receive no distribution.

Ascena was a Mahwah, N.J.-based specialty retailer offering clothing, shoes and accessories for misses and plus-size women. The company made a pre-packaged Chapter 11 bankruptcy filing on July 23, 2020 under case number 20-33113.

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