U.S. Bankruptcy Judge Jerry Funk withheld confirmation of Stein Mart Inc.’s Chapter 11 reorganization plan, expressing concerns about third-party releases in his March 29 order.
Funk’s order follows a March 11 confirmation hearing in U.S. Bankruptcy Court for the Middle District of Florida, Jacksonville Division, in which the U.S. Trustee and the Securities and Exchange Commission objected to the plan because not all parties agreed to the releases.
Third-party releases are provisions that release nondebtor parties, such as creditors and officers and directors, from claims related to a company in bankruptcy.
Funk sustained in part the U.S. Trustee’s objection to the reorganization and scheduled a status conference April 8.
Stein Mart’s lead attorney in the case, Gardner Davis of Foley & Lardner, hopes the issue can be resolved at that conference.
“Judge Funk issued an extremely well-thought-out, lengthy opinion which brought order and clarity to one of the most difficult and controversial aspects of bankruptcy law — the extent to which a Chapter 11 plan can provide releases of third-party claims,” Davis said.
“Now we just need to figure out how to efficiently and quickly confirm the plan of liquidation and move on.”
Stein Mart filed for Chapter 11 reorganization Aug. 12.
The Jacksonville-based fashion retailer immediately began going-out-of-business sales and closed the last of its 281 stores Oct. 26.
Stein Mart in January filed a reorganization plan, which calls for secured and priority claims to be paid off but leaves little money for unsecured claims.
Funk’s order said unsecured creditors would receive about 8% of total claims under the plan. But 91% of unsecured creditors, representing about 96% of the claims by dollar amount, voted in favor of the plan.
“Given the fact that external circumstances derailed the Debtors’ ability to consummate a sale as a going concern, the Plan represents the best path to ensure value for all unsecured creditors,” the Official Committee of Unsecured Creditors said in a statement filed in court supporting the plan.
“While the Committee would have preferred that the Debtors’ businesses reorganized as a going-concern, saving jobs and ensuring that additional spaces would not be dark in shopping centers, reorganization simply was not possible under the difficult market circumstances caused by the COVID-19 pandemic,” it said.
Although Stein Mart Inc. went out of business, a company that specializes in reviving online stores has reestablished the Stein Mart brand on the internet.
Miami-based Retail Ecommerce Ventures acquired Stein Mart’s intellectual property for $6.2 million in a bankruptcy court auction and relaunched steinmart.com early in 2021.