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Bankruptcy Judge Rejects Shopko Dissolution Plan

Bankruptcy Judge Rejects Shopko Dissolution Plan

A U.S. Bankruptcy Court judge has blocked Shopko‘s liquidation plan, according to the Green Bay Press-Gazette. While the judge applauded the retailer’s efforts, he rejected the proposal on the grounds that it barred creditors from pursuing legal claims against Shopko executives, directors and outside consultants.

The planned bankruptcy proceedings would have paid all of Shopko's bank debt by July, covered most administrative claims and secured a $15.5 million payback from Sun Capital. However, some creditors are suing the company; McKesson Corp. has filed civil claims of fraud against at least four Shopko executives. The current proposal would block their lawsuits from continuing.

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McKesson, a supplier of prescription medications, was owned more than $67 million when Shopko filed for bankruptcy in January. The company claims that at least four Shopko executives made false promises in November and December in order to keep Shopko pharmacies supplied, even though the retailer was no longer paying for the goods.

McKesson is in favor of the liquidation plan (outside of the protection from legal claims element), but the judge sided with the creditor’s argument against approval. The decision leaves Shopko with three options:

  • Continue negotiations with McKesson and resubmit a plan before the retailer’s exclusivity window expires, at which point creditors can submit their own plans to wind down Shopko;
  • Appoint a bankruptcy trustee who would take control of Shopko and wind it down in a quick and orderly fashion; or
  • Convert its bankruptcy filing to chapter 7, which would let a trustee take control of the retailer as it winds down.

Even though its final liquidation is stalled, Shopko already has successfully divested certain parts of the business. Shopko Optical was acquired by Monarch Alternative Capital LP earlier this month, according to Green Bay Press-Gazette. This deal will result in 80 locations being moved from big box stores to their own storefronts. Additionally, Monarch and Raider Hill Advisors purchased more than 75 Shopko properties, including 24 stores and the retailer’s headquarters.

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