While Saks Global has been moving relatively smoothly through bankruptcy court and is preparing to finish the process this summer, that doesn’t mean the lawyers will take a break.
Debra Sinclair, the Willkie Farr & Gallagher attorney representing Saks Global, told federal bankruptcy judge Alfredo Pérez on Friday that the company agreed in principle to set up a litigation trust and seed it with a $20 million war chest to pursue potential legal claims. The final details over the trust are expected to be established soon.
“That trustee will be empowered to investigate, litigate and settle claims on behalf of the trust with the goal of obtaining recoveries for the beneficiaries,” Sinclair said.
There are two groups of beneficiaries. Class A includes investors who put up the debtor-in-possession financing to see Saks Global through bankruptcy as well as pre-petition secured debt. Class B includes companies with unsecured claims, including brands that got left holding the bag for unpaid goods in the bankruptcy filing.
The first $20 million of proceeds realized by the trust would go back to Saks Global to pay back the initial funding. The next $80 million would be split evenly between Class A and Class B beneficiaries. Beyond that, DIP holders and secured lenders would receive 80 percent of the proceeds, with the rest going to the unsecured creditors.
The unsecured creditors in the case — who are bound to see pennies on the dollar for what they’re owed — have already been looking for potential legal claims and other sources of value at the company that they can tap into.
For instance, the creditors committee has sought information from Richard Baker, former Saks Global chief executive officer, and Ian Putnam, former CEO of Saks Global Properties & Investments, under bankruptcy Rule 2004.
A separate special committee of parent HBC GP LLC has signaled support for the effort, saying it was “unable to secure the full participation” of Baker and Putnam.
“The special committee believes that information and testimony from these individuals would be useful in the context of its independent investigation into the potential viability of legal claims,” the committee said.
Baker has resisted the effort, arguing that the information is already available within the company, including communications with other executives, documents tied to the $2.7 billion deal to buy Neiman Marcus Group and information about former Lord & Taylor locations.
The details about the trust were revealed during a hearing shortly after the company updated its disclosure statement, which was approved by the court. The company also filed an amended plan of reorganization.
Saks Global said: “The plan outlines the go-forward financial framework for the business, centered on unlocking the combined full potential of Saks Global’s three luxury banners to achieve double-digit adjusted EBITDA margin and drive profitable, sustainable growth.”
