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Business

Sears is getting sucked dry by pricey lawyers and bankers

By
Lisa Fickenscher
Published Aug. 29, 2019
Updated Aug. 30, 2019, 9:45 a.m. ET

Surprise, surprise: Fancy lawyers are making a fortune off the Sears bankruptcy — and mom-and-pop suppliers are getting stiffed.

An angry group of creditors claims that white-shoe law firms and pricey financial advisers in the Sears Chapter 11 case are bleeding the retailer’s estate dry, leaving little or nothing for manufacturers who’ve stocked shelves with everything from clothing to appliances.

In an unusual move, suppliers who still haven’t been paid for merchandise they shipped ahead of Sears’ October 2018 bankruptcy filing asked a judge this week to halt payments and slash payouts to the white-collar outfits, court documents show.

Those include law firms Weil, Gotshal & Manges, Paul Weiss and Akin Gump Strauss and the investment banks Lazard Freres and Houlihan Lokey Capital.

“Every dollar that continues to get paid to professionals is one less dollar available to pay administrative creditors,” according to a group of claims traders who buy distressed debt and filed a complaint on Wednesday.

Since Sears filed for bankruptcy protection on Oct. 15, the advisers have billed the estate for approximately $170 million — a “remarkable 25 percent of the total administrative expenses” in the case, according to court filings.

In January, The Post reported that a single paralegal at Weil Gotshal billed $174,000 for a month’s work, logging 431 hours at $405 an hour. Several partners meanwhile, were billing upward of $1,300 an hour.

The firms have been paid a total of $130 million so far, according to the documents, and expect to receive an additional 20% at the conclusion of the case as is customary in bankruptcy cases, say industry experts.

That’s because the professionals are paid 80% of their total bill every month while other creditors have to wait for their payout, typically until a reorganization plan is approved by the court, according to industry experts.

“The professionals are getting paid like clockwork,” said David Wander of Davidoff Hutcher & Citron, who is representing a vendor, Pearl Global Industries. “We are saying, don’t pay them right now or pay them a lot less and that they should be at risk just like the creditors.”

While out of the ordinary, it wouldn’t be the first time such a demand has been raised in court, say bankruptcy experts.

“It’s pretty unusual for administrative creditors to step up and say, stop paying the professionals, that they should all feel some pain,” said distressed debt expert Adam Stein Sapir. “But there is precedent for the professionals to share the [financial] pain.”

Part of problem is that Sears and the company it was sold to, Transform Holdco, owned by Sears’ former chairman and CEO Eddie Lampert, are feuding over the terms of the February transaction, alleging that they are each owed funds from the other.

Caught in the middle are Sears’ creditors who have not been paid money that was earmarked to them when the sale was approved.

“The companies who are doing business with Transform are getting paid,” Wander said. “But it’s the Sears vendors who kept the company alive during the bankruptcy who are not getting paid.”