J.C. Penney’s stockholders, who have gained more attention than most do in a Chapter 11 bankruptcy case, backed down on a motion requesting to reverse the bankruptcy and received some court support to hire a lawyer to research their concerns.
U.S. Bankruptcy Judge David Jones granted a group of 200 shareholders ad hoc committee status and a budget of $250,000 to hire independent counsel with bankruptcy experience who can look at the case and bring them unbiased conclusions.
“It’s not a war chest to go to war with,” Jones said. “This is a good-faith commitment to hire someone to come and look and provide you advice.”
After a full morning with 130 people participating on the phone-accessible hearing, the judge said he didn’t want to see their soon-to-be hired adviser “run back in with 2,000 document requests.”
Longtime Penney shareholder Rahul Shekatkar filed the shareholder motion to dismiss the bankruptcy and to form an official equity committee on behalf of owners of 15 million Penney shares. He was joined at the hearing by Niko Celentano, a longtime shareholder who is helping to spearhead the Penney shareholder group.
Shekatkar and Celentano focused on Penney’s financials. Other shareholders who spoke at the hearing said Penney should have borrowed money as Macy’s did this week to help it get through the coronavirus. Another shareholder said Penney should have waited, as the stock market has improved. Plus, the shareholder said, the federal government’s stimulus money hasn’t had time to work and more is on the way.
Penney filed for bankruptcy last month, saying the coronavirus forced-shutdown of its 846 stores squashed its ability to carry out its turnaround plans as it burned through about $40 million to $50 million a week in March, April and into May.
The shareholder ad hoc committee will have full disclosure rights to research Penney’s documents that are shared with lenders and the unsecured creditors committee. In a bankruptcy, the lawyer and other adviser fees are paid for by the estate — Penney in this case — after they are approved by the judge.
It’s unusual for shareholders to pressure a bankruptcy for a role in the proceedings. But the large group of shareholders who include former employees and longtime customers organized behind the belief that Penney didn’t even need to file for a Chapter 11 reorganization.
Unsecured creditors filed a motion Monday opposing shareholder efforts and said their request for “extraordinary relief is unwarranted.”
Creditors also said they’re already trying to maximize the estate’s value so another official committee’s efforts would be “duplicative.”
There’s little precedent for shareholders of public companies to come out with anything from a court-led reorganization. Assets are dispersed in an established pecking order, with government taxes, lenders, other creditors including utilities and merchandise suppliers, bondholders and preferred shareholders all paid ahead of common shareholders.
Jones said he reviewed shareholder letters and noticed “there was a lot of misinformation” in them, adding that he understood that their equity was wiped out, but the bankruptcy is about more than that.