Sports Authority’s Chapter 11 term lenders lost an appeal for an emergency injunction that would have escrowed the retailer’s receipts from supplier’s consignment sales. A U.S. district judge in Delaware said the lenders failed to prove they faced irreparable harm without the action.
As reported, Sports Authority, soon after filing for bankruptcy in early March, filed lawsuits against some 160 of its suppliers over consignment sales totaling $85 million worth of merchandise. Vendors have argued that they should be paid when items are sold under consignment arrangements rather than lenders getting first priority over such funds.
According to Law360.com, Wilmington Savings Fund Society FSB, the lenders’ agent, asked U.S. District Court Judge Richard G. Andrews to order a diversion of money from consigned goods sales to a Wells Fargo bank account pending an appeal of U.S. Bankruptcy Judge Mary F. Walrath’s refusal of a similar order. Wilmington Savings had argued that Judge Walrath’s decision denied lenders a right to adequate protection of $276.7 million owed to first-priority lien holders.
Judge Andrews said that in his opinion the bankruptcy court has a fuller view of the case and that his district court “should not unnecessarily intrude into the early stages of a large-scale bankruptcy.”
He added that determinations about whether lenders or consignment vendors have higher priority vary from case to case.
“Based on the representations in the briefing in front of me, it appears that, at worst, appellants would have to bring a lot of litigation to recover damages if it turns out to have a higher priority lien than the consignment vendors,” Judge Andrews wrote.
Sports Authority had reached a settlement plan on April 1 that would have paid suppliers 60 percent of the amounts received for consignment sales. But around mid-April Sports Authority abandoned the plan and pressed ahead with about 160 separate bankruptcy court suits challenging supplier claims and rights.
David S. Kupetz of Sulmeyer-Kupetz, told Law360 on Thursday one challenge for suppliers recouping consignment amounts is that it was unclear if Sports Authority would be sold as a going concern or to one or more liquidators.
“It potentially creates a problem in a sale context, depending on what kind of buyer you have and whether the buyer intends to comply with the court’s order,” said Kupetz, who represents Agron Inc., which sells Adidas accessories on consignment via Sports Authority.
At the time of its bankruptcy filing, Sports Authority listed about $1.1 billion in debts and attributed about 20 percent of its revenues to consigned goods sales.
Vendors under consigned arrangements are also objecting to the bidding procedure and overall sales process in the case.
Meanwhile, reports arrived last week indicating that Modell’s Sporting Goods Inc. had walked away from a deal to acquire some stores that would have continued to operate under the Sports Authority name. Modell’s and Sports Authority reportedly could not agree on financial terms.
Bloomberg said the failure to reach a deal with Modell’s to continue operating some stores increases the chance of liquidation for the chain.
Sports Authority remains in discussions with a number of possible bidders for leases, including Dick’s Sporting Goods Inc., Academy Sports & Outdoors as well as a number of liquidation firms, sources said. Modell’s could still acquire some of the leases.
Sports Authority set a deadline of last Wednesday for bids for an auction of assets and store leases that to take place on May 16. The sale is set to be approved by the court on May 27. The retailer is in the midst of closing 140 of its 450 stores.
“We have received expressions of interest from a number of potential buyers,” Sports Authority said last week in an emailed statement. “We are optimistic about the results of the M&A process, which runs through the end of May.”
