Three Samuels Jewelers vendors want their consigned inventory removed from a planned sale of the 110-store chain’s assets to lender Wells Fargo.
On Feb. 18, Innovative Pearl filed a motion arguing that Samuels does not have the right to sell its consigned inventory, stating that “the debtor is proposing to sell inventory it does not own.”
The company said it is “willing to work with [Samuels] to maximize the recovery of the consignment inventory” but objects to a “price that is less than the agreed consignment price.”
Innovative Pearl’s limited objection has since been joined by two other vendors, GoGreen Diamonds and Unique Designs.
The rights of consignment vendors have increasingly become an issue in Chapter 11 proceedings, with long legal skirmishes breaking out in the bankruptcies for Sports Authority and Whitehall Jewelers.
Innovative Pearl’s filing cites the 2008 Whitehall case, in which Judge Kevin Goss concluded that vendors maintain rights in consigned inventory during bankruptcies.
At press time, Wells Fargo and Samuels had not filed responses, but both had previously recognized the rights of consignment vendors, the court papers said.
Jewelry vendors filed similar objections in the Sears bankruptcy last year, though that retailer ultimately worked out a deal with the consignors.
On Feb. 14, Samuels announced that Wells Fargo, the retailer’s primary lender, had submitted a “credit bid” for all the Austin, Texas–based retailer’s assets, including its intellectual property and websites. That effectively doomed management’s plans to sell its assets as a going concern, and, as a result, its stores will close by Feb. 25.
Following Samuels’ notice, Wells Fargo responded in a filing it had “hoped for a positive outcome” for Samuels, but felt it had no choice but to pull the plug.
“There have been no bids for the working capital assets that secure Wells Fargo’s claims,” said the motion. “The [debtor-in-possession] Facility, which matures on February 28, 2019, is and has been in default. Estate professional fees are significantly over budget.”
The motion said that Samuels had seen a “massive and unexplained post-petition falloff in sales…resulting in what is certain to be a significant loss to Wells Fargo.”
Samuels’ bankruptcy papers can be seen here.
(Image courtesy of Samuels Jewelers)
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