The Athlete’s Foot filed its Joint Plan of Liquidation with the U.S. Bankruptcy Court last week, indicating that unsecured creditors will only recover 7% to 10% of their claims. TAF filed for Chapter 11 bankruptcy protection in December 2004, less than one year after a management team led by CEO Bob Corliss acquired the athletic specialty retailer from former parent Group Rallye SA. The retailer liquidated its 124 corporate stores this past spring.

The original bankruptcy filing listed assets of $33.6 million and liabilities of $39.4 million. GMAC Commercial Finance LLC was listed as the only secured creditor with a $14.0 million claim. The claim was originally valued at “substantially all” of TAF’s assets. New Balance was listed as the largest unsecured creditor with roughly $1.43 million in claims and K-Swiss was right behind them with approximately $1.36 million. Nike is owed nothing in the filing since they had TAF on pay-in-advance terms. Reebok International ($550k for Reebok and $259k for OnField), Timberland ($739k), and Puma North America ($605k) rounded out the top five trade creditors. The Plan listed $30.3 million in general unsecured claims, while proceeds are seen in the $2.0 million to $2.6 million range.

The bankruptcy action was taken by The Athlete's Foot Stores, LLC, which owned and operated the TAF corporate stores. The Athlete's Foot Brands, Inc., which was not included in the bankruptcy, was not affected by the BK move and continues to manage franchise operations. AFB has common ownership and management of the LLC and owns the brand trademark.

The Plan sets up a liquidation trust to manage and distribute assets, resolve disputed claims, and pursue recovery of assets. The plan cites a $525,000 fee paid to GMAC within days of the company's Chapter 11 filing as one potential target for recovery. The creditor committee has apparently filed a lawsuit against GMAC to recover the fee payment.

The Plan indicated that store liquidation sales concluded by March 15, 2005 and resulted in approximately $15.6 million in recovered assets. From these and other proceeds, TAF apparently satisfied their obligations to GMAC under a DIP Credit Facility. The remaining proceeds of the liquidation sales are being used by TAF to “fund ongoing operating expenses” and, ultimately, for distribution to creditors under the Plan.