November 12, 2019, New York – Recently, between November 7, 2019 to November 11, 2019, Kmart Holdings Corporation (the “Plaintiff” or “Debtor”) initiated nearly 350 complaints against several defendants to avoid and recover preferential transfers of property that occurred during the ninety (90) day period prior to the commencement of the Sears Holdings Corporation and its affiliates (collectively, the “Debtors”) bankruptcy case pursuant to sections 547 and 550 of chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). According to the complaints filed in the court, the Plaintiff also sought to avoid and recover from defendants or any other person or entity for whose benefit transfers were made under sections 548 and 550 of the Bankruptcy Code any transfers that may have been fraudulent conveyances.
The most significant cases in the group are filed against Dbk Concepts, Inc. for return of $99,823.41 and Coloron Jewelry, Inc. for the avoidance of transfers worth $99,680.67. AAA Pharmaceutical, Inc. and Jvckenwood USA Corporation are sued for $99,823.41 and $99,680.67, respectively.
By way of background, on October 15, 2018 (the “Petition Date”), the Debtors commenced a case by filing a voluntary petition for relief in the United States of Bankruptcy Court for the Southern District of New York under Chapter 11 of the Bankruptcy Code. The Debtors are continuing to operate their business and manage their properties as debtors in possession under sections 1107(a) and 1108 of the Bankruptcy Code. The Debtors’ Chapter 11 cases are being jointly administered for procedural purposes only according to Bankruptcy Rule 1015(b).
According to the court filings, the Debtors were an integrated retailer with significant physical and intangible assets, as well as virtual capabilities, which operated a national network of stores and websites. As of the Petition Date, the Debtors operated 687 retail stores in forty-nine (49) states, Guam, Puerto Rico, and the U.S. Virgin Islands under the Sears® and Kmart® brands and employed approximately 68,000 individuals, of whom about 32,000 were full-time employees, and nearly 36,000 were part-time employees
As stated in the complaint, the financial difficulties that led to the Debtors’ decision to file the bankruptcy cases are attributable to a combination of factors, such as declining revenues, unfavorable market conditions in the retail industry, and the Debtors’ significant and ongoing cash flow, liquidity issues, etc.
Usually, in a bankruptcy case, an adversary proceeding starts when a person who is suing (the plaintiff) files a complaint with the bankruptcy court. The complaint lists the facts relating to the lawsuit and requests the court to enter a judgment based on the facts and the law. Once the plaintiff files a complaint, the court issues the summons. The plaintiff serves the summons on the person being sued (the defendant) along with a copy of the complaint.
Once the defendant receives the complaint, he or she has about 30 days to respond, depending on the local rules of the bankruptcy court. To respond, the defendant must file an answer, which relates to the allegations in the complaint. If the defendant does not file a response on or before the deadline, the court enters a default, and the plaintiff can obtain a default judgment.
The summons in the adversary proceedings had not been issued yet, but are likely to be issued soon. The cases are pending before the Honorable Judge Robert D. Drain and are jointly administered under Case No. 18-23538.