Forever 21 case dismissal motion draws objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., Sept. 23 – Forever 21, Inc.’s motion seeking dismissal of its Chapter 11 bankruptcy cases drew an objection Thursday from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

In September 2020, the court initially granted the U.S. trustee’ motion to convert the cases to Chapter 7 but ultimately denied that motion, ruling that the debtors should have an opportunity to try to get a plan confirmed.

Nearly a year later, the court denied the debtors’ motion to approve their disclosure statement.

Vara then filed a renewed motion to convert the cases.

“The debtors’ motion, although styled as one for dismissal, seeks much more expansive relief, by way of three separate proposed orders,” Vara said.

The motion seeks approval of a process for claims reconciliation, resolution and allowance; the distribution of about $35 million in estate assets to secured creditors and administrative claimants; the abandonment of property; and the dismissal of the cases and dissolution of the debtors.

“The debtors’ proposed orders include provisions that are typically found only in plans,” the U.S. trustee said.

In addition to provisions relating to claims allowance procedures, the proposed orders include provisions specifying the treatment of each different class of claims, detailed rules regarding undeliverable distributions, and a provision treating the “classification, distribution, releases and other benefits” provided under the proposed distribution order as a “good faith compromise and settlement of all claims and interest against the debtors.”

“In essence, what the debtors seek is approval to reconcile claims and make distributions in the manner they would have done if their previously proposed plan had been confirmed,” Vara said.

“Then, only after that process is complete, do they seek dismissal of their cases.”

Vara said there are significant assets available for distribution, and conversion rather than dismissal is in the best interests of creditors and the estates, because dismissal could result in “a race to the courthouse” by claimants to recover against those assets.

A hearing is scheduled for Oct. 4.

Forever 21 is a Los Angeles-based fast fashion retailer. It filed bankruptcy on Sept. 29, 2019 under Chapter 11 case number 19-12122.

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