Register, or Login to view the article
May 25, 2019 – Transform Holdco ("Transform," owned by ESL Investments, Inc.) filed a complaint against the Debtors [Docket No. 4033] listing a "litany of breaches" of the January 17, 2019 asset purchase agreement further to which Transform agreed to purchase the Debtors' going concern business for mixed consideration of $5.2bn. In its prayer for relief, and beyond asking for a laundry list of judgments and specific performance, ESL asks for $130.0mn in compensatory damages relating to post-petition damages, ie damages that it will undoubtedly argue should get priority status as the Debtors' ever-shrinking pie of distributable proceeds gets carved up.
The complaint alleges, “Transform brings this adversary complaint against Defendants to address a litany of breaches of contract and other wrongs in contravention of the APA and this Court’s Sale Order authorizing the sale of substantially all of the Defendants’ assets to Transform (the ‘Sale Transaction’). The Defendants’ course of conduct has imposed undue liabilities on Transform and deprived it of bargained-for assets, funds, and other value. Prompt resolution of the disputes raised in this Complaint is important not only to Transform but also to the administration of the estates as the Defendants seek to confirm a Chapter 11 plan.
Through intensive negotiations between the Parties, the APA was structured to balance the Defendants’ concerns about administrative solvency and certainty of meeting Closing conditions, with Transform’s need for assurances that Sears would continue operating in the ordinary course pending the sale and deliver a going concern with the necessary assets and liquidity. Among other items, Transform agreed to assume over $600 million in estate liabilities, subject to dollar-for-dollar reduction if certain assets were not delivered at Closing.
The Defendants’ breaches and other misconduct have harmed Transform by depriving it of assets that it contracted to purchase under the APA and requiring Transform to take on unbargained-for liabilities. Since before March 2019, Transform has attempted in good faith to resolve these issues with the Defendants, through requests to mediate the disputes and Transform’s efforts to discuss the issues with the Defendants. However, the Parties have been unable to resolve these issues.
Despite Transform’s efforts throughout the sale process to negotiate a deal agreeable to the Defendants, and its steadfast commitment to preserving Sears as a going concern, the Defendants violated the APA beginning immediately after signing, in an attempt to unduly minimize value due to Transform, divert assets that Transform purchased to the Defendants’ estates, and impose liabilities on Transform that it did not assume. Among other violations, the Defendants have failed to deliver hundreds of millions of dollars of assets in the form and amount called for by the APA, which Transform obtained in exchange for assuming certain liabilities of the estates; failed to transfer all the real property known as Hoffman Estates; breached their obligations to act in the Ordinary Course of business and inflicted damage on Transform by intentionally delaying payments to vendors; and continued their attempts to shift $166 million in accounts payable liabilities on Transform, despite contrary terms in the APA.”
Read more Bankruptcy News