Sports Authority’s Chapter 11 term lenders lost an appeal for an emergency injunction that would have escrowed the bankrupt 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.
According to Law360.com, Wilmington Savings Fund Society FSB, the lenders’ agent, asked U.S. District 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.
“As pointed out in some of the responses, the proposed relief sought by this motion is not really a stay so much as a different order than the one the bankruptcy court entered,” Judge Andrews said in a denial opinion signed Wednesday.
Judge Andrews further said that in his opinion that the bankruptcy court has a fuller view of the case and that the district court “should not unnecessarily intrude into the early stages of a large-scale bankruptcy.”
Finally, Judge Andrews said 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, appellant 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 said.
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.
The company 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 Sport Authority abandoned the plan and pressed ahead with about 160 separate bankruptcy court suits challenging supplier claims and rights.
David S. Kupetz of SulmeyerKupetz, told Law360 on Thursday one challenge for suppliers recouping consignment amounts is that it was it’s unclear if Sports Authority will be sold as a going concern or to one or more liquidators.
“It potentially creates a problem in a sale context, depending 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.
