Liberated Brands’ bankruptcy case may have been dismissed in May, but service firms are still seeing their paydays.
That may be a hard pill to swallow for the factories and retailers who likely won’t see checks written for their unpaid invoices, or for the employees laid off from the company.
Liberated licensed from Authentic Brands Group the rights to distribute and make apparel under brands such as RVCA, Roxy, Quiksilver and Billabong. But its business tumbled through a combination of high interest rates and competition from fast-fashion companies, alongside Liberated’s overnight growth in which it got too big too fast.
The result was layoffs and then a Chapter 11 bankruptcy filing in February. However, as is typical with most Chapter 11s, the business didn’t remerge with its debt restructured and a new game plan for moving forward. Instead, it completely wound down its operations.
Since the bankruptcy filing, the company held store closing sales for around 125 locations, sold off their inventory, marketed their outstanding leases while rejecting others and sold its Europe and APAC businesses.
“…There is no available funding or stakeholder support to continue these Chapter 11 cases or to confirm a Chapter 11 plan,” Alix Partners’ James Nelson, a consultant to the company, said in court documents requesting approval for the case’s dismissal.
Nelson went on to add that converting the case to a Chapter 7 liquidation wouldn’t help the situation or the companies Liberated owes money to because it would just “add another layer of administrative expenses” with no benefit.
No Money
Even with the proceeds from the store closings and inventory sales, which was reportedly in excess of $60 million, the company said in court documents it will be unable to fully pay back its debtor-in-possession lenders or asset-backed loan lenders. Unsecured creditors, as in all bankruptcies, are at the bottom of the payout waterfall.
Still, lawyers and consultants are the priority and first in line when it comes to unsecured creditors getting paid.
The most recent round of final fee requests were served Tuesday and offered a look at the amount of spending pumped into winding down Liberated. In total, the firms working on behalf of Liberated and the unsecured creditors charged a total of $12.3 million, some of which has been partially paid out.
Whether or not $800 was the right price to send out five emails to market a couple of leases or to charge thousands of dollars to hang colorful signs in stores screaming discounts (effectively squeezing out any remaining brand equity for the next licensee), is not up for discussion in court.
It does raise the question of spending prudence in a bankruptcy. It’s not an anomaly and most certainly won’t be the last time questions around administrative costs are raised.
The Cost to Wind Down Liberated Brands
Here’s a breakdown of who expects to get paid what in Liberated’s bankruptcy:
Kirland & Ellis LLP, Liberated legal
- Time Period: Feb. 2 through July 31
- Compensation: $5.9 million ($880 to $2,595 per hour involving 27 associates, 16 partners, 1 jr. paralegal, 6 paralegals and 15 “support staff”
- Expenses: $107,127
Klehr Harrison Harvey Branzburg LLP, Liberated legal
- Time Period: Feb. 2 through June 26
- Compensation: $877,505
- Expenses: $41,768
AlixPartners, Liberated advisors
- Time Period: Feb. 2 through July 31
- Compensation: $3.5 million ($555 to $1,540 per hour involving 4 partners, 3 directors, 5 senior vice presidents, 3 vice presidents and 2 consultants)
- Expenses: $4,496 (airfare, ground transport, lodging, meals)
Gordon Brothers Realty Services LLC, Liberated consultant that handled lease negotiations and store closing sales
- Time Period: Feb. 2 through July 31
- Compensation: $16,783 (includes 6.5 percent cut of the gross on lease termination and assignments in Florida and Charleston)
- Expenses: $719 (for 5 email blasts to market the two leases)
Kelley Drye & Warren LLP, legal for committee of unsecured creditors committee
- Time Period: Feb. 17 through June 15
- Compensation: $1.1 million
- Expenses: $3,207
Cole Schotz, legal for committee of unsecured creditors committee
- Time Period: Feb. 17 through June 15
- Compensation: $538,471
- Expenses: $3,116
FTI Consulting, financial advisor to unsecured creditors committee
- Time Period: Feb. 17 through June 15
- Compensation: $1.2 million
- Expenses: $147
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