Judge dismisses legal shield in bankruptcy of former parent of Ann Taylor

An Ann Taylor “LOFT” store in Encinitas, California. REUTERS/Mike Blake

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  • Company must return to bankruptcy court to set out plan
  • Judge calls executive protections ‘shocking’

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(Reuters) – A federal judge in Virginia has terminated legal protections for insiders at Ann Taylor’s former parent company, calling the company’s use of a popular tool in bankruptcies “shocking”. businesses.

In an 87 page decision, U.S. District Judge David Novak of the Eastern District of Virginia on Thursday overturned a Virginia bankruptcy laws court’s approval of Mahwah Bergen Retail Group’s Chapter 11 reorganization plan and ruled that the so-called non-debtor releases were void and unenforceable. The company had said the releases, which protect non-bankrupt people and company-related entities, were key to the plan.

“The sheer scale of the releases can only be described as shocking,” Novak wrote.

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Novak found that the bankruptcy court that approved the deal exceeded “the constitutional limits of its authority,” mirroring similar concerns raised by a judge who ruled on releases of non-debtors in the manufacturer’s bankruptcy. from OxyContin Purdue Pharma.

Mahwah, formerly known as Ascena Retail Group, filed for bankruptcy in July 2020 with over $1 billion in debt and plans to close several of its stores. The company’s brands, including Ann Taylor, Lane Bryant and Loft, were later sold to private equity firm Sycamore Partners. Mahwah now only exists to reduce its domain.

Last year, U.S. Bankruptcy Judge Kevin Huennekens approved the company’s plan, which included releasing non-debtors for company insiders from litigation that accused Ascena and former executives of fraud. in securities. Lead plaintiffs in the securities dispute and the US Department of Justice’s bankruptcy watchdog, the US Trustee, have appealed.

Novak said in Thursday’s ruling that releases of non-debtors have become too frequent. He said the 4th US Circuit Court of Appeals had ‘clarified’ that such releases were ‘disadvantaged’ and should be granted ‘cautiously and infrequently’.

He also referenced the recent reversal by a Manhattan federal judge of the approval of Purdue Pharma’s bankruptcy plan based on similar concerns about non-debtor releases, which in Purdue’s case were intended to protect the Sackler family owners of the company. Novak said Mahwah’s assertion that posts are essential to his reorganization is undermined by the fact that they have become so mainstream.

“As District Judge Colleen McMahon aptly observed, ‘Where every case is unique, none are unique,'” Novak wrote.

A lawyer for Mahwah did not immediately respond to a request for comment.

A spokesperson said the US administrator is “extremely pleased with the court’s opinion and will continue to defend his legal position in other districts across the country.”

The case is Joel Patterson et al v Mahwah Bergen Retail Group, Inc., US District Court, Eastern District of Virginia, No. 3:21-cv-00167.

For Mahwah: George Hicks Jr., Andrew Lawrence, Edward Sassower, Steven Serajeddini and John Luze of Kirkland & Ellis and Cullen Speckhart and Olya Antle of Cooley

For the US Administrator: Ramona Elliott, P. Matthew Sutko and Sumi Sakata of the DOJ and John Fitzgerald III, Kathryn Montgomery and Hugh Bernstein of the Office of the US Administrator

For Securities Applicants: Mickey Etkin, Andrew Behlmann and John Schneider of Lowenstein Sandler and Ronald Page Jr. of Ronald Page PLC

Read more:

Purdue Pharma decision targets controversial U.S. bankruptcy tactic

Bankruptcy judge approves sale of Ann Taylor and Lane Bryant to Sycamore

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at [email protected]

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