Main Case: In re: Deb Stores Holding LLC; Bankr. Case No. 14-12676 (KG)

Plaintiff: Deb Shops SDE-Commerce LLC

 

On July 24, 2015, Deb Shops SDE-Commerce LLC filed sixteen actions pursuant to Section 547 of title 11 of the United States Code (the “Bankruptcy Code”.) Pursuant to the Final Financing Order Authorizing Borrowing and the Use of Cash Collateral, Granting Liens and Providing Super-Priority Administrative Expense Status and Granting Adequate Protection Pursuant to Section 363 and 364 of the Bankruptcy Code (the “Final DIP Order” [Docket No. 334],) the Debtors retained standing to pursue the Avoidance Actions (as defined in the Final DIP Order,) but all decisions to settle, dismiss, release, prosecute, etc. must be made by a panel consisting of one designee of the Creditors Committee and one designee of the Term Loan Agent (Abelco, L.L.C.) on behalf of the Debtors’ estates (the “Panel”.)

 

As the ultimate number of avoidance actions will depend on the Panel, the avoidance action drill might be limited. However, according to the Debtors’ previously filed Motion for Authority to Settle Classes of Preference Claim Controversies Pursuant to Bankruptcy Rule 9019(b) and to Modify Compromise Procedures (the “Settlement Motion” Docket No. 988,) ASK LLP as Special Counsel has identified approximately 170 potential preference claims that aggregate approximately $17 million. As Deb Stores filed for bankruptcy protection on December 4, 2014, the Debtors, the Committee, and Abelco, L.L.C. have ample time to run the preference drill and there are likely more complaints to come.

 

The substance of the Complaints reviewed thus far is somewhat standard. Plaintiff does assert fraudulent conveyance claims under Section 548, relying solely on the recitation of the statutory language. In some instances, Plaintiff sued both the vendor and the factoring company without clearly identifying to whom the transfers were directed. Similarly, Plaintiff appears unable to identify from which of the Debtors, or Debtors’ accounts, the alleged transfers were made. Instead, Plaintiff relies on a loose association between Debtor Deb Shops SDFMC, LLC and Debtor SDE-Commerce LLC, the alleged transfers, and the Debtors’ records regarding intercompany receivables. It is not clear to what extent that the Debtors have the records to support their cases. The Settlement Motion suggests that the Debtors’ books and records might be a problem (See Settlement Motion, p.2.)

 

Epiq Systems is the claims agent for Deb Stores Holding LLC. General case information can be found at: http://dm.epiq11.com/DBS

 

R. Grant Dick IV

(302) 984-3867