April 18, 2019, New York – Last week the plaintiff, acting at the direction of the Restructuring Committee of the Board of Directors of Sears Holding Corp. filed a lawsuit against former CEO Eddie Lampert, his hedge fund ESL, Seritage Growth Properties, Bruce Berkowitz of Fairholme Capital Management, and various directors of ESL and Sears. The plaintiff alleged that “Lampert and the other culpable insiders” have systematically stripped many billions of dollars’ worth of assets from the retailer for their benefit, and to the detriment of the creditors in the two years leading up to its Chapter 11 bankruptcy. The complaint specifically alleged that as Sears was sliding into bankruptcy, Lampert – in concert with and assisted by other defendants, transferred billions of dollars of the company’s assets to its shareholders for grossly inadequate consideration or no consideration at all. This asset stripping was done in various ingenious ways, involving several insiders. The company, which formerly owned Sears and Kmart, claims these actions be deemed fraudulent and maintains that the creditors should be paid.
The 110-page complaint focused on the five “Fraudulent Transfers.” – The 2011 spinoff of Orchard, a California home improvement retailer with 89 stores (Orchard was liquidated in 2018) ; the SHO rights offering in Oct 2012; the Sears Canada partial spinoff in Nov 2012 (Sears Canada was liquidated in 2017) ; the Lands’ End spinoff the Apr 2014; the Seritage transaction in July 2015. The complaint alleges that the transfers resulted in transfers of interests in the property of Sears and were made for no consideration or were actual and constructive fraudulent transfers, and hence are liable to be avoided U.S.C. §§ 544(b), 550(a)(1), and (2), 1107; NY DCL § 276; 6 Del. C. § 1304(a)(1); 740 Ill. Comp. Stat. 160/5(a)(1))
Judge Robert D. Drain is presiding over the Sears Holding bankruptcy case in United States Bankruptcy Court for the Southern District of New York under A.P. No. 19-08250-rdd. The Court has scheduled the Pre-Trial Conference for June 20, 2019. The answers to the complaints are due by May 20, 2019. Before the petition date, Sears was a holding company for two national retail brands, “Sears” and “Kmart.” Sears Roebuck and Kmart once were the most significant and second- largest retailers in the United States by sales (until the late 1980s).