Tuesday Morning’s proposed settlement draw U.S. trustee pushback

By Sarah Lizee

Olympia, Wash., July 27 – Tuesday Morning, Inc.’s proposed global settlement and release agreement drew an objection Wednesday from Region 6 U.S. trustee Kevin M. Epstein, according to documents filed with the U.S. Bankruptcy Court for the Northern District of Texas.

As background, the company filed bankruptcy with plans to continue its business operations with a debtor-in-possession loan from proposed lender and stalking horse bidder Invictus. But after the court approved interim DIP financing, Invictus didn’t provide a stalking horse bid, and a multi-party litigation started.

After shuttering stores and selling substantially all of their assets to a liquidator, the debtors are now administratively insolvent and have moved to convert the cases to Chapter 7 by Aug. 1.

The debtors have about $22 million on hand, but most of the funds are being set aside for either payment of Chapter 11 administrative expenses or secured lenders, while $250,000 is set aside for a Chapter 7 trustee to investigate and pursue Chapter 5 causes of action for the benefit of general unsecured creditors.

The settlement seeks to resolve several disputes and provide agreements with respect to how the liquidation proceeds would be divided.

The U.S. trustee said he objects to expedited treatment as well as the substance of the motion.

“The assets have been liquidated. The pending conversion is not an emergency,” Epstein said in his objection.

“The settlement proposes to bind the Chapter 7 trustee, who does not yet exist, so the motion should be deferred until the Chapter 7 trustee is appointed and substitutes in for the debtors-in-possession.”

The U.S. trustee said he further objects to the motion to the extent it would subvert any of the priority schemes of the bankruptcy code.

Tuesday Morning is a discount off-price retailer based in Dallas. The company began its second Chapter 11 bankruptcy case on Feb. 14 under case number 23-90001. The previous case started on May 27, 2020 under case number 20-31476. The company exited that round of bankruptcy on Dec. 31, 2020.

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