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Sears Vendors Demand Halt on New Attorney Fees in Bankruptcy

August 30, 2019 | Posted in : Bankruptcy Fees / Expenses, Fee Dispute, Fee Request

A recent Law 360 story by Rick Archer, “Sears Vendors Demand Halt on New Attorney Fees,” reports that a bottled water company has joined multiple other Sears Holding Corp. vendors in asking for a halt to new professional expenses claims and equal treatment in splitting up what it says is a shrinking pool of money. 

Niagara Bottling LLC argued in a motion that Sears is running out of cash and — with $200 million in professional expenses already submitted — every dollar paid to the company’s lawyers and other professionals will mean one less for the vendors who have kept the retail chain’s stores supplied since its Chapter 11 filing.  The motion joins one filed last week by other vendors.  “Because the debtors’ cases appear to be administratively insolvent, no further professional fees should be paid at this time,” the bottling company argued.

Sears declared bankruptcy in October, with more than $11 million in debt.  ESL Investments, a firm owned by former Sears CEO Edward Lampert, bought its assets for $5.2 billion in February.  Sears has faced objections to its proposed Chapter 11 plan by multiple creditors who argue there will not be enough money left to cover legal and other professional fees, post-petition vendor payments and other Chapter 11 administrative expenses.

Earlier this month ESL objected to Sears’ Chapter 11 plan on the grounds the plan assumes favorable court rulings for Sears on a number of disputed points in the sale agreement.  If the court finds Sears is owed less money that it claims, Sears will not have enough to cover the administrative expenses, it argued.

In the motion, Niagara — a California-based bottled water and soft drink company — joined eight other post-petition vendors who filed a motion last week asking that further professional fee approval be suspended and their claims be given equal treatment, claiming Sears has stopped paying even uncontested administrative claims and the estate appears headed for insolvency.  “Notably, distressed claim buyers are now offering only 40% for administrative claims that involve no disputed issues of fact or law,” it said.

Niagara claimed professionals in the case have already billed about $167 million in fees and expenses and have recently submitted applications for over $32.5 million more.  If Sears is declared administratively insolvent and the case is converted to a Chapter 7, already-approved professional fees will be given priority for payment, it said.  “Accordingly, no further payments of professional fees should be made at this time.  All administrative creditors should receive equal treatment,” it said.