Malden Mills latest bankruptcy filing may have hit a major roadblock. As reported last week in BOSS/SEW, the company was challenged by Malden Mills Creditor Trust (MMCT), who asked that the trial be delayed (See BOSS_0703, SEW_0703). In the letter, MMCT stated that Maldens previous bankruptcy case in Massachusetts was officially closed only fourteen hours prior to the new January 11 bankruptcy petition and the company made no mention in any court document of their plan to immediately re-file. Because of this lack of disclosure, the Creditor Trust feels that the original case was fraudulently closed.
Since then, MMCT has filed a motion to have the original bankruptcy case, filed in 2001, re-opened on the grounds that, if they had known of Maldens intent to re-file for bankruptcy, they never would have assented to the plan to emerge from bankruptcy.
Malden then filed a response to MMCT stating “The Motions represent a regrettable attempt by out-of-the-money shareholders to derail a sale process that represents Malden Mills last best hope to maximize the value of its estate for all stakeholders The central allegations in the Motions that the Final Decree in the 2001 Cases was procured by fraud is utterly false.”
The filing goes on to state that Malden has continued to struggle since emerging from bankruptcy, because of the “lower cost structure of foreign competitors” and a “significant drop in sales performance.” In the three years since emerging from bankruptcy, Malden has had to amend its credit facilities 23 times.
Concerning the reasons behind keeping the second filing a secret from the court, Malden stated the marketing process surrounding the sale was “highly sensitive,” and “It was important throughout the last weeks and months to maintain the confidence of vendors (several of which are members of the Creditor Trust).”
In the end, Maldens arguments did not work, and U.S. Bankruptcy Judge Joel B. Rosenthal ordered the case be re-opened in Massachusetts and the Delaware case, which was filed to expedite the sale of the company, transferred to that venue. While it is still unclear as to whether or not the Creditor Trust will completely block the sale of the company, with so many parties involved, the process will surely take much longer than originally anticipated.
In related news, the sale of Malden Mills is certainly drumming up quite a bit of interest. Court documents obtained by BOSS indicate that more than 15 parties expressed interest in the auction. In addition, Chrysalis Capital Partners issued a statement regarding the recent Malden Mills Bankruptcy and potential sale to Gordon Brothers.
The private equity firm said that recent reports have stated that the sale of Malden Mills Industries Inc. to Gordon Brothers Group is near completion, pending approval from the U.S. Bankruptcy Court. However, Chrysalis Capital Partners confirms that the sale is not complete and that Chrysalis continues to be interested in purchasing the assets of Malden Mills and operating the company. Chrysalis has submitted a similar offer to the owners of Malden Mills and is looking forward to participating in the auction.
Chrysalis Capital Partners is a Philadelphia-based private equity firm with $300 million in capital under management. Chrysalis focuses on 'special situation' investing such as divestitures, buyouts, turnarounds, financial restructurings, reorganizations, and recapitalizations in middle-market companies throughout the United States.
