Unsecured Creditors Seek to Convert Sports Authority’s Chapter 11 Reorganization to Chapter 7 Liquidation

by San Antonio Attorney

Sports Authority could be forced to convert their Chapter 11 case to Chapter 7 as unsecured creditors wants a quick liquidation, according to court papers filed.  The unsecured creditors are seeking to stop the sports retailer from spending its money in preparing a bankruptcy plan.

Sports Authority had 464 stores when it filed for Chapter 11 bankruptcy in March.  The company planned to find buyers on some of its locations, but it ended up having closing sales following a dispute between suppliers and lenders regarding how the company’s money should be used.

At an auction in June, the company’s name and some of its intellectual property was bought by Dicks Sporting Goods Inc., which is currently the biggest sporting goods retailer in the United States.

Unsecured creditors said Sports Authority cannot afford to fund its own bankruptcy case.  To let the company stay in Chapter 11 and use cash to prepare the necessary bankruptcy exit plan would not be good for creditors, according to unsecured creditors.

In a Chapter 7 bankruptcy case, a trustee would be assigned to wrap up the case faster than if it stayed in Chapter 11.

Based on court documents filed, the creditors expressed that Sports Authority is unjustly expediting certain administrative costs of the bankruptcy case over other expenses.  The company has allegedly allotted $23 million for advisers and attorneys and $2.85 million for executive incentives, yet suppliers and landlords have not received their administrative payments.

The retailer has liquidated the majority of its assets, which includes intellectual property rights, store leases and inventory.

The company sold its rights to naming the Mile High Stadium in Denver, Colorado, which is the home arena for the Denver Broncos.  The Denver Broncos emerged as the top bidder to assume the naming rights.

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