Anna’s Linens creditors’ sale appeal to be dismissed via settlement

By Caroline Salls

Pittsburgh, March 18 – Anna’s Linens, Inc. reached an agreement under which an appeal of the store-closing sale and agency agreement assumption order filed in July 2015 by creditors P & A Marketing, Inc. and Shewak Lajwanti Home Fashions, Inc. will be dismissed, according to a motion filed Thursday with the U.S. Bankruptcy Court for the Central District of California.

On July 6, 2015, Anna’s Linens received court approval of an agency agreement under which a joint venture comprised of Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners, LLC would sell the company’s merchandise through going-out-of-business sales.

The company said in Thursday’s motion that the primary dispute at issue in the appeal was the creation of an $800,000 fund, which was funded by Salus Capital Partners, LLC.

Anna’s said the $800,000 fund was to be used to pay fees and expenses of retained professionals and, to the extent any additional funds remained after the payment of those allowed administrative expenses, the funds would be paid to general unsecured creditors.

In their appeal, P & A and Shewak said the sale order improperly provides for the distribution of the $800,000 fund in a manner that is inconsistent with the Bankruptcy Code to the detriment of the appellants and other holders of non-professional administrative priority claims.

The appellants argued that the $800,000 fund should be distributed in accordance with the Bankruptcy Code and that notice of the creation of the $800,000 fund was not properly given to all affected parties.

In related litigation, the appellants and another Anna’s creditor filed a lawsuit against Salus and others seeking the equitable subordination of their claims amid allegations of fraud, aiding and abetting fraud and breach of fiduciary duty.

In addition to dismissal of the appeal, the proposed settlement calls for $400,000 of the $800,000 fund to be distributed in accordance with the sale order and the other $400,000 to be held in a separate account for the benefit of administrative expense creditors.

Salus, its related entities and other secured creditors will not share in the distributions from either of the funds, the motion said.

A hearing is scheduled for April 6.

Anna’s Linens, a Costa Mesa, Calif.-based home decor retailer, filed for bankruptcy on June 14, 2015. The Chapter 11 case number is 15-13008.

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