DOJ Objects to Forever 21’s Bid to Undo Conversion to Chapter 7

Bankrupt Forever 21 Inc. shouldn’t be allowed to re-argue a court-ordered conversion to Chapter 7 liquidation because it would only run up more bills that the company can’t afford to pay, the Justice Department’s bankruptcy watchdog said.

“If a plan is not feasible, the court can dismiss or convert the case without giving the debtor an opportunity to modify the plan,” the U.S. Trustee’s Office said in a court filing Wednesday.

Forever 21’s inability to fully repay administrative claims already makes it impossible to confirm a plan under Section 1129(a)(9)(A) of the bankruptcy code, the U.S. Trustee said.

Judge Mary F. Walrath Sept. 16 ordered the conversion from Chapter 11 to Chapter 7, finding that the company was unlikely to get a reorganization plan confirmed.

The retailer asked the court to reconsider on the ground that it should first be able to present its Chapter 11 plan.

The company already has approximately 1,500 administrative claimants who say they are owed $337.5 million, the U.S. Trustee said in its objection, urging the court to deny the company’s request. Administrative claims include taxes, attorneys’ fees, accounting fees, and wages to employees who work after the bankruptcy filing.

Forever 21 will have at most $35.7 million to pay the estimated $248.6 million of allowed administrative claims—those that don’t include professional fees—the U.S. Trustee said in its objection to the company’s motion.

“It is unrealistic to think that the Debtors could reach a settlement with all or nearly all administrative claimants whereby the claimants would accept a 10 to 15% payment,” the Trustee said.

Forever 21 filed for Chapter 11 in September 2019 and has since sold most of its U.S. assets to a group of landlords for $81 million and assumed liabilities.

A hearing on the matter is scheduled for Oct. 14.

The case is In re Forever 21, Inc., Bankr. D. Del., No. 19-12122, objection filed 10/7/20.