https://www.wsj.com/articles/sears-creditors-oppose-sale-to-edward-lampert-11547767983
Retailers’ creditors seek to sue ‘savior’ and his hedge fund ESL, accusing them of causing Sears’s destruction
By Soma Biswas
Jan. 17, 2019 6:33 p.m. ET
Sears Holdings Corp.’s creditors are balking at the retailer’s proposed sale to Edward Lampert, its former chief executive and would-be rescuer, accusing the hedge-fund manager of stripping Sears of its best assets before dumping the chain into bankruptcy and reacquiring it on the cheap.
In a filing Thursday in federal bankruptcy court in White Plains, N.Y., lawyers for the committee representing Sears’s unsecured creditors asked Judge Robert Drain for permission to sue Mr. Lampert, his hedge fund ESL Investments and its president, Kunal S. Kamlani for the “excruciating, slow-motion destruction” of the 126-year-old retailer.
“Over the course of Lampert’s and ESL’s reign, Sears closed over 3,500 stores, cut approximately 250,000 jobs and lost untold billions in value,” lawyers for the committee wrote in the filing, which also accuses Mr. Lampert and ESL of running Sears like a “private portfolio company that existed solely to provide the greatest returns on their investment” at the expense of the brand, its employees and creditors.
Mr. Lampert and the hedge fund “have painted themselves as saviors” attempting to keep some 400 Sears stores open, the creditors’ lawyers said, arguing instead that the retailer can’t survive as a going concern.
ESL is Sears’s largest creditor and its most significant source of financing in recent years, a spokesman for the hedge fund said, adding that ESL’s actions “have always been taken in good faith, on fair terms” and been reviewed by its board along with independent directors and advisers. The firm promised to contest claims against its transactions with Sears, the spokesman added.
A Sears spokesman declined to comment.
Mr. Lampert succeeded in keeping control of Sears on Wednesday after the retailer’s board accepted his $5.3 billion bid over a rival offer from liquidators.
Mr. Lampert bought Kmart out of bankruptcy and combined it with Sears in 2005. As mall-based retailers stumbled over the past decade, the cash-strapped Sears sold many assets, including Lands’ End in 2014. The following year, it sold hundreds of properties to a new, publicly traded real-estate investment trust, Seritage Growth Properties , for $2.7 billion. Mr. Lampert is chairman of Seritage and owns a major stake in the company.
Sears’s creditors say the Lands Ends’ and Seritage transactions, designed to move the struggling company’s valuable assets out of creditors’ reach, were engineered to benefit Mr. Lampert at their expense. Their filing Thursday challenges those deals, and a series of financing transactions between Sears and ESL, as fraudulent transfers that left the retailer insolvent.
The committee—which includes landlords Simon Property Group and Brixmor Property Group as well as bondholders and the U.S. government’s pension insurer—also took aim at the $1.3 billion “credit bid” portion of Mr. Lampert’s offer, designed to forgive ESL’s loans to Sears.
So-called fraudulent conveyance lawsuits, such as the one Sears’s creditors said they will bring, don’t typically involve intentional fraud. Instead, they are premised on the idea that an insolvent company paid out money but didn’t receive value in return, so the cash should be returned to creditors. Companies that end up in bankruptcy after leveraged buyouts, like Sears and media giant Tribune Co. , or after being spun off, like chemical company Tronox Inc., often prompt such lawsuits from creditors. In 2014, Anadarko Petroleum Corp. agreed to pay more than $5 billion to creditors of Tronox stemming from the chemical maker’s improper spinoff.
Lawyers for Sears’s creditors’ committee said it would file its proposed suit under seal—to comply with a prior court order and because it relies on confidential information—but said it believes the suit should be “litigated in open court,” according to court papers.
A hearing on the sale is set for Feb. 1 in White Plains.