Payless and its creditors have reached a settlement regarding significant issues in the company’s bankruptcy plan. The plan was filed in a court in St. Louis, and it will allow the company to exit bankruptcy in the coming months as a “healthier, restructured” company. If the plan is approved via vote by creditors, which was a settlement reached among various parties, an investigation into the company will also be dropped.
The investigation stems from allegations that the company’s private equity owners contributed to its financial problems by acquiring debt in order to pay special dividends, which is known as dividend recapitalization. The issue at hand stems from private equity firms Blum Capital Partners and Golden Gate Capital, which received a $2 billion leveraged buyout of Payless back in 2012. This buyout added $382 million in debt to the company.
Not long after the buyout, the owners of Payless borrowed $225 million to pay additional dividends in 2013 and then borrowed $665 million in 2014. Of the $665 million, $127 million was used to pay dividends.
Approved voters allowed to vote on the bankruptcy plan have until July 18 to issue their vote. The bankruptcy plan stated the following: “These contributions, along with an additional contribution from the Debtors, will result in substantially increased recoveries to unsecured creditors that far exceed any amounts such creditors would receive in a liquidation scenario.”
It also notes that the payment does not admit guilt or wrongdoing on the part of the company.
A separate investigation is underway by an independent director of Payless who was appointed to the company’s board back in January. That investigation is looking into whether there are any claims that debtors might have against the creditors.
Chapter 13 bankruptcy is an option for companies in New York that have no other way of climbing out of debt. An attorney experienced in this procedure can make the process easier for all involved.
Source: The Topeka Capital-Journal, “Payless, creditors reach settlement on significant issues in bankruptcy plan,” June 28, 2017