IN THE UNITED STATES BANKRUPTCY COURT FOR THE …Obligations are secured by the Prepetition...

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

--------------------------------------------------------------- In re:

L.K. BENNETT U.S.A, INC.,1

Debtor. ---------------------------------------------------------------

x : : : : : : x

Chapter 11 Case No. 19-10760 (JTD) Hearing Date: August 15, 2019 at 10:00 a.m. (ET) Obj. Deadline: August 8, 2019 at 4:00 p.m. (ET)

MOTION OF THE DEBTOR FOR ENTRY OF AN ORDER PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 9019 APPROVING

PROPOSED STIPULATION CONCERNING THE COMMITTEE CARVE-OUT

L.K. Bennett U.S.A, Inc. (the “Debtor”), by and through its counsel, DLA Piper LLP

(US), hereby submits this motion (the “Motion”) for entry of an order, substantially in the form

attached hereto as Exhibit A (the “Proposed Order”), pursuant to section 363 of title 11 of the

United States Code (the “Bankruptcy Code”) and Rule 9019 of the Federal Rules of Bankruptcy

Procedure (the “Bankruptcy Rules”), approving and authorizing the proposed stipulation (the

“Stipulation”), attached to the Proposed Order as Exhibit 1, concerning the Committee Carve-

Out (as defined below) by and among the Debtor, the Committee (as defined below) and Wells

Fargo (as defined below, and together with the Debtor and the Committee, the “Parties”). In

support of this Motion, the Debtor respectfully states as follows:

JURISDICTION

1. This Court has jurisdiction over this case and this Motion pursuant to 28 U.S.C.

§§ 157 and 1334 and the Amended Standing Order of Reference from the United States District

Court for the District of Delaware, dated as of February 29, 2012. This is a core proceeding

within the meaning of 28 U.S.C. § 157(b). 1 The last four digits of the Debtor’s federal tax identification number are (6607). The mailing address for the Debtor is 595 Madison Avenue, New York, New York 10022.

Case 19-10760-JTD Doc 219 Filed 07/25/19 of 15

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2. Pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy Practice and

Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local

Rules”), the Debtor consents to the entry of a final on this Motion if it is determined that the

Court, absent consent of the parties, cannot enter final orders or judgments consistent with

Article III of the United States Constitution.

3. Venue is proper under 28 U.S.C. §§ 1408 and 1409.

4. The statutory predicates for the relief requested in this Motion are sections 105(a)

and 363 of the Bankruptcy Code and Bankruptcy Rule 9019.

BACKGROUND

A. General Background

5. The Debtor is the subsidiary of L.K. Bennett, Ltd. (“LKB UK”), an international

affordable luxury fashion brand.

6. On March 7, 2019, LKB UK entered into administration and Robert Hunter Kelly,

Daniel Christopher Hurd and Craig Anthony Lewis were appointed joint administrators (“Joint

Administrators”) of LKB UK pursuant to paragraph 22 of schedule B1 to the United Kingdom

Insolvency Act 1986.

7. On April 3, 2019 (the “Petition Date”), the Debtor filed with this Court a

voluntary petition for relief under the Bankruptcy Code. The Debtor continues to be in

possession of its assets as a debtor in possession pursuant to sections 1107(a) and 1108 of the

Bankruptcy Code. On April 16, 2019, the Office of the United States Trustee for the District of

Delaware appointed an official committee of unsecured creditors (the “Committee”). As of the

date hereof, no trustee or examiner has been appointed in the Debtor's chapter 11 case.

8. As of the Petition Date, the Debtor’s brick-and-mortar retail operations consisted

of five (5) “store-in-store” or other concessions, at which it offered merchandise sold under the


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L.K. Bennett brand, ten (10) retail store locations nationwide, its headquarters located in New

York and a distribution center located in New Jersey.

9. On April 11, 2019, LKB UK, its Joint Administrators and Byland UK Limited

(the “UK Purchaser”) entered into an agreement for the sale of the business and certain assets

(the “UK Sale”) of LKB UK, not including the Debtor or its assets.

10. The Debtor has liquidated its inventory2 and furniture, fixtures and equipment

(“FF&E”) located at premises it formerly leased, has abandoned any remaining inventory3 and is

preparing for the wind-down of its business and estate and exit from this chapter 11 case. The

estimated ending cash balance of the net proceeds of such liquidation, including a subtraction to

make an adequate protection payment to Wells Fargo of approximately $516,499 and fund

reserves for the payment of estimated administrative expenses and priority claims, including fees

for professionals retained in this chapter 11 case, is $1,129,392 (the “Liquidation Proceeds”).

11. The Debtor estimates that the total amount of liquidated, nondisputed, nonpriority

unsecured claims against the Debtor’s estate as of the date hereof, is $862,000 (the “General

Unsecured Claims”), not including the trade payable general unsecured claim in the amount of

$21,765,708.84 (the “Parent Claim”) held by LKB UK.

12. The Debtor does not have sufficient funds to develop and confirm a plan of

reorganization or liquidation and is continuing to incur administrative expenses.

13. Accordingly, prior to filing this Motion, the Debtor filed the Motion of the Debtor

to Dismiss the Chapter 11 Case and for Entry of an Order Establishing the Dismissal

Procedures [D.I. 214] (the “Dismissal Procedures Motion”), whereby it seeks to dismiss this

2 The Debtor, in consultation with its advisors, is currently considering options, including abandonment, of inventory remaining in the distribution center of Bloomingdale’s, Inc. 3 The Debtor is currently engaged in negotiations regarding the possible bulk sale of certain of its remnant assets that have not already been abandoned.


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chapter 11 case and the entry of an order authorizing procedures for such dismissal (the

“Dismissal Procedures”).

14. The entry of an order approving the Dismissal Procedures is a condition to the

effectiveness of the Stipulation.

B. Background Related to the Stipulation

a. Prepetition Financing and the Consensual Use of Cash Collateral

15. The Debtor’s primary source of liquidity and capital resources prior to the Petition

Date was cash provided by the sale of merchandise and credit available under the Secured

Facility (defined below).

16. On or about October 10, 2013, the Debtor entered into that certain Facility

Agreement among LKB UK and L.K. Bennett U.S.A, Inc. as borrowers, certain guarantors

thereto, Wells Fargo Capital Finance (UK) Limited and Wells Fargo Bank, N.A. (London

Branch) as original lenders and Wells Fargo Capital Finance (UK) Limited as agent, arranger

and security trustee (collectively, “Wells Fargo”) in accordance with which Wells Fargo

extended loans and other financial accommodations to LKB UK, the Debtor and certain of its

affiliates (the “Secured Facility”). The Debtor is both a borrower and guarantor under the

Secured Facility.

17. The Debtor also entered into that certain US Security and Pledge Agreement

among LKB UK, as grantor, L.K. Bennett U.S.A, Inc., as US Borrower, and Wells Fargo Capital

Finance (UK) Limited as collateral agent on or about October 10. 2013 (the “US Security

Agreement,” and together with the Secured Facility and all related security and other

instruments, documents, guarantees and agreements, and recorded documents and notices, the

“Prepetition Credit Documents”). The US Security Agreement evidenced a grant of first-priority


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security interests and liens in favor of Wells Fargo in all of the Debtor’s assets, including all of

the Debtor’s inventory, accounts and accounts receivable, deposit accounts, contract rights and

the proceeds of the foregoing (collectively, the “Prepetition Collateral”), to secure payment of

the obligations incurred under the Prepetition Credit Documents.

18. As of the Petition Date, the aggregate outstanding amount owed by the Debtor

under the Prepetition Credit Documents was not less than $12,151,131.01, plus interest, fees,

costs or other charges or amounts paid prior to the Petition Date in accordance with the

Prepetition Credit Documents (collectively, the “Prepetition Obligations”), which Prepetition

Obligations are secured by the Prepetition Collateral.

19. During this chapter 11 case, the Debtor has had a continuing need to use the

Prepetition Collateral to operate its business, liquidate its assets and administer this chapter 11

case.

20. On April 10, 2019, the Court entered the Agreed Interim Order (I) Authorizing the

Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay

and (IV) Scheduling a Final Hearing [D.I. 53] (the “First Interim Order”).

21. Pursuant to the First Interim Order, Wells Fargo consented to the use of its Cash

Collateral (as that term is defined in section 363(a) of the Bankruptcy Code) according to a

budget.

22. The First Interim Order also granted to Wells Fargo a replacement security

interest in, and lien on, all assets of the Debtor (the “Adequate Protection Lien”) nunc pro tunc to

the Petition Date, and an allowed superpriority administrative expense claim (the “507(b)

Claim”), subject to a carve-out for certain fees to be paid to the clerk of the Court and the U.S.

Trustee and allowed and unpaid claims for unpaid fees, costs, and expenses for professionals


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retained in this chapter 11 case. Accordingly, Wells Fargo, through the Adequate Protection

Lien, has a valid and perfected security interest in the Liquidation Proceeds and all of the

Debtor’s assets to the extent of any diminution in value of the Prepetition Collateral.

23. On April 29, 2019, the Court entered the Second Agreed Interim Order (I)

Authorizing Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the

Automatic Stay and (IV) Scheduling a Final Hearing [D.I. 96] (the “Second Interim Order” and

together with the First Interim Order, the “Interim Orders”). Pursuant to the Second Interim

Order, the Debtor agreed to retain Hilco Merchant Resources, LLC to assist with the Debtor’s

liquidation as a condition of the continued use of Cash Collateral and waiver of the Debtor’s

default under the First Interim Order.

24. On May 10, 2019, the Court entered the Final Agreed Order (I) Authorizing Use

of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay and

(IV) Scheduling a Final Hearing [D.I. 151] (the “Final Order”). Pursuant to the Final Order, the

Debtor’s authority to use Cash Collateral expired on June 1, 2019.

25. On June 3, 2019, the Court entered the Order (I) Extending Period of Authorized

Use of Cash Collateral (II) Granting Adequate Protection, and (III) Modifying the Automatic

Stay [D.I. 184] (the “First Extension Order”) and, together with the Interim Orders and the Final

Order, the “Cash Collateral Orders”) whereby the Debtor’s authority to use Cash Collateral was

extended to June 22, 2019.

26. Pursuant to the First Extension Order, on July 2, 2019, the Debtor paid to Wells

Fargo an adequate protection payment of $516,499, the estimated amount of obligations on

account of the Primary Borrowing (as defined in the Final Order).


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27. Finally, the First Extension Order provided for the continued use of Cash

Collateral until June 22, 2019, for the limited purpose of the Debtor’s continued operation as it

winds-down.

28. Despite the expiration of the Debtor’s authority to use Cash Collateral under the

First Extension order, Wells Fargo has agreed to extend the use of Cash Collateral for the orderly

wind-down and exit from this chapter 11 case. To that end, contemporaneously with this

Motion, the Debtor filed the Order (I) Further Extending Period of Authorized Use of Cash

Collateral (II) Granting Adequate Protection, and (III) Modifying the Automatic Stay (the

“Proposed Second Extension Order”) under certification of counsel.

29. As of the date hereof, the aggregate outstanding amount owed by the Debtor to

Wells Fargo under the Prepetition Credit Documents was not less than $3,669,355.09.

Accordingly, a deficiency claim for the Prepetition Obligations and the 507(b) Claim against the

Debtor’s estate would exceed the Liquidation Proceeds and the value of the assets of Debtor.

b. The Committee and General Unsecured Claims

30. The Committee has played an active role in this chapter 11 case, beginning due

diligence upon formation by requesting that the Debtor produce documents related to the

Prepetition Obligations, payments made to Wells Fargo prior to the Petition Date and the UK

Sale.

31. Following investigation and due diligence, the Committee acknowledged that the

Debtor’s estate has neither unencumbered funds to satisfy the General Unsecured Claims nor

meritorious causes of action, the proceeds of which might satisfy the General Unsecured Claims.


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32. The Committee and Debtor have determined that if the Court were to dismiss or

convert this chapter 11 case to one under chapter 7 of the Bankruptcy Code, the holders of the

General Unsecured Claims would receive little or no distribution in satisfaction of such claims.

C. The Stipulation

33. Following negotiations regarding the non-insider General Unsecured Claims, the

claims of Wells Fargo as the Debtor’s secured lender and the available exit strategies of the

Debtor, the Parties entered into the Stipulation, the salient terms of which Stipulation are as

follows:

(a) Upon the later of: (i) the date the Court enters a final order approving the Dismissal Procedures and (ii) the date the Court enters a final order approving the Stipulation (the “Stipulation Effective Date”), the Debtor shall: (i) transfer cash from the Liquidation Proceeds in the amount of $50,000 to the Committee to fund a reserve to pay fees and expenses incurred by the Committee’s professionals in administering the Dismissal Procedures and conducting claims reconciliation (the “Committee Administration Reserve”); (ii) transfer cash from the Liquidation Proceeds in the amount of $200,000 to the Committee to fund a reserve to be distributed—in addition to the balance of the Committee Administration Reserve (the “Committee GUC Reserve” and, together with the Committee Administration Reserve, the “Committee Carve-Out”) by the Committee on a pro-rata basis in full satisfaction of the allowed, non-insider general unsecured claims against the Debtor, not including any deficiency claims of Wells Fargo and the Parent Claim (collectively, the “Allowed General Unsecured Claims”); (iii) transfer cash from the Liquidation Proceeds in the amount of $127,923 to the Committee to fund a reserve to be distributed by the Committee to holders of estimated prepetition priority claims and postpetition administrative expense claims (the “Priority Claim Reserve”), the balance of which the Committee shall transfer to Wells Fargo; (iv) reserve cash from the Liquidation Proceeds in the amount of $1,706,854 to fund a reserve administered by the Debtor to pay the fees for services rendered and reimburse expenses approved by the Court on a final basis of professionals retained in this chapter 11 case (the “Final Fee Reserve”), the balance of which the Debtor shall transfer to Wells Fargo; and (v) transfer all of the Debtor’s remaining assets to Wells Fargo in full and final satisfaction of its claims against the Debtor’s estate.4

4 For the avoidance of doubt, there will be no distribution with respect to the Parent Claim or Wells Fargo on


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(b) Upon the Stipulation Effective Date, for good and valuable consideration, the adequacy of which is hereby confirmed, to the fullest extent permitted under applicable law, Wells Fargo will be deemed released by the Debtor and its estate from any claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action and liabilities whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter arising, in law, equity, or otherwise that are based in whole or part on any act omission, transaction, event, or other occurrences, whether direct or derivative, taking place on or prior to the Stipulation Effective Date in connection with, or related to, the Debtor’s estate and its operations, the Prepetition Credit Documents or this chapter 11 case other than with respect to liabilities arising out of or relating to any act or omission of Wells Fargo that is determined by a final order of a court of competent jurisdiction to constitute actual fraud, willful misconduct, or gross negligence (the “Release”).

RELIEF REQUESTED

34. By this Motion, and in accordance with section 363 of the Bankruptcy Code and

Bankruptcy Rule 9019, the Debtor respectfully requests entry of an order approving and

authorizing the Stipulation.

BASIS FOR RELIEF REQUESTED

I. The Stipulation is a Fair and Reasonable Compromise in the Best Interest of the Debtor’s Estate and Creditors.

35. Bankruptcy Rule 9019(a) provides, in relevant part, that “[o]n motion by the

trustee and after notice and a hearing, the court may approve a compromise or settlement.” Fed.

R. Bankr. P 9019(a). Compromises and settlements are “a normal part of the process of

reorganization.” Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v.

Anderson, 390 U.S. 414, 424 (1968) (quoting Case v. Los Angeles Lumber Prods. Co., 308 U.S.

106, 130 (1939)). Settlement agreements are generally favored and, in fact encouraged, in

bankruptcy proceedings, as they provide for often needed and efficient resolutions. In re TSIC,

Inc., 393 B.R. 71, 78 (Bankr. D. Del. 2008); see also In re World Health Alts., Inc., 344 B.R.

account of its deficiency claim.


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291, 296 (Bankr. D. Del. 2006) (citing Meyers v. Martin (In re Martin), 91 F.3d 389, 393 (3d

Cir. 1996)); cf. In re Penn Cent. Transp. Co., 596 F.2d 1102, 1113 (3d Cir. 1979) (recognizing

compromise of disputes as a “practical adjustment”); see also Tindall v. Mavrode (In re

Mavrode), 205 B.R. 716, 719 (Bankr. D.N.J. 1997).

36. The decision whether to approve or reject a settlement under Bankruptcy Rule

9019 lies within the sound discretion of the Court. In re Louise’s, Inc., 211 B.R. 798, 801 (D.

Del. 1997) (declining to approve settlement found to be sub rosa plan); In re Neshaminy Office

Bldg. Assoc., 62 B.R. 798, 803 (E.D. Pa. 1986). To make this determination, a court must assess

and balance the value of the claim that is being compromised against the value to the estate of

the acceptance of the compromise proposal. See Martin, 91 F.3d at 393.

37. Further, approval is appropriate where the compromise is fair, reasonable, and in

the interest of the estate. Id. Courts should not, however, substitute their judgment for that of

the debtor, but instead canvas the issues to see whether the settlement falls below the lowest

point in the range of reasonableness. See In re World Health Alts., Inc., 344 B.R. at 296 (“The

court does not have to be convinced that the settlement is the best possible compromise. Rather,

the court must conclude that the settlement is within the reasonable range of litigation

possibilities”) (internal citations and quotations omitted); see also In re Coram Healthcare

Corp., 315 B.R. 321, 330 (Bankr. D. Del. 2004); In re Neshaminy Office Bldg. Assoc., 62 B.R. at

803; In re Penn Cent. Transp. Co., 596 F.2d 1102, 1104 (3d Cir. 1979); In re W.T. Grant Co.,

699 F.2d 599, 608 (2d Cir. 1983), cert. denied, 464 U.S. 22 (1983).

38. In Martin, the Third Circuit Court of Appeals gleaned from TMT Trailer Ferry

four factors to guide bankruptcy courts in approving or rejecting settlement agreements: “(1) the

probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of


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the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4)

the paramount interest of the creditors.” Martin, 91 F.3d at 393; accord Will v. Nw. Univ. (In re

Nutraquest, Inc.), 434 F.3d 639, 644 (3d Cir. 2006) (finding that the Martin factors are useful

when analyzing a settlement of a claim against the debtor as well as a claim belonging to the

debtor); see also TMT Trailer Ferry, Inc., 390 U.S. at 424; Official Comm. of Unsecured

Creditors v. CIT Grp./Bus., Credit Inc. (In re Jevic Holding Corp.), 787 F.3d 173, 180 (3d Cir.

2015); In re Marvel Entm’t Grp., Inc., 222 B.R. 243, 250 (D. Del. 1998) (proposed settlement

held in best interest of the estate); cf. In re Mavrode, 205 B.R. 716, 721 (Bankr. D.N.J. 1997)

(referring to Martin factors as test under “fair and equitable standard”).

39. Application of these criteria does not require a mini-trial or an evidentiary hearing

to determine the probable outcome of claims waived in settlement. See Official Comm. of

Unsecured Creditors v. Cajun Elec. Power Co-op., Inc. (In re Cajun Elec. Power Co-op., Inc.)

119 F.3d 349, 356 (5th Cir. 1997); see also Depoister v. Mary M. Holloway Found., 36 F.3d 582,

586 (7th Cir. 1994). Instead, a court must gather relevant facts and law to make an informed and

objective decision with respect to approving the settlement by balancing the Martin/TMT Trailer

Ferry factors. Id. Courts generally give deference to a debtors’ business judgement in

evaluating settlements. See In re Key3Media Grp., Inc., 336 B.R. 87, 93 (Bankr. D. Del. 2005).

40. The Debtor submits that the Stipulation is a fair and reasonable compromise that

falls well within the range of reasonableness, and, therefore, is in the best interests of the

Debtor’s estate and creditors. The Martin factors weigh in favor of approval of the Stipulation.

But for the Stipulation, the Parties are at an impasse as to how to orderly and consensually exit

this chapter 11 case given the availability of funds compared to the claims against the Debtor’s

estate. The Parties entered into the Stipulation because they recognized that resolving this


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dispute through litigation brings attendant risks and uncertainty for all Parties and any value or

benefits to the Debtor’s estate would be greatly reduced if not eclipsed by the time and expense

of litigation. The Committee and the Debtor have determined, that challenging the Prepetition

Obligations or the inevitable motion to dismiss or convert this chapter 11 case brought by Wells

Fargo would be extremely difficult, as a substantive matter to sustain. Next, Wells Fargo asserts

senior liens on all of the estate’s assets including the Liquidation Proceeds and will provide no

further access to Cash Collateral except to support the Debtor’s operations on a limited basis to

distribute its assets, wind down its business and the estate and exit from this chapter 11 case as

contemplated by the Proposed Second Extension Order; thus any litigation or further motion

practice would have no funding source. The issues described herein that would need be

addressed in litigation would undoubtedly require the Parties to engage in significant, time-

consuming motion practice ultimately fruitless for the creditors of the Debtor’s estate. The

cornerstones of the Stipulation (i) obviate the need for further administrative expense now that

the Debtor has realized all value of the estate through liquidating its inventory and (ii) results in a

release of Wells Fargo and an otherwise unattainable disbursement to holders of Allowed

General Unsecured Claims.

41. In an exercise of its business judgment, the Debtor has considered alternatives to

the Stipulation and the attendant risks and expenses of such alternatives, and have determined, in

its business judgment, that the proposed terms of the Stipulation are fair, reasonable and in the

best interests of its estate.

II. The Committee Carve-Out Does Not Violate the Absolute Priority Rule

42. The Absolute Priority Rule was codified as a part of the “fair and equitable”

requirement for a cram down in connection with plan confirmation pursuant to section 1129(b)


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of the Bankruptcy Code to curtail the ability of any one creditor group or interested party to use

the reorganization process to gain an unfair advantage. See In re Armstrong World Indus., Inc.

432 F.3d 507, 512 (3d Cir. 2005) (explaining that a plan is fair and equitable under section

1129(b) if it does not allow junior claimants to receive estate property before an impaired senior

class of claimants contrary to the priority scheme of the Bankruptcy Code); see also Czyzewski v.

Jevic Holding Corp., 137 S. Ct. 973, 982 (2017) (quoting lower court favorably and upholding

decision to deny plan confirmation where settlement distribution scheme failed to follow the

Absolute Priority Rule; “Congress, the court explained, had only codified the absolute priority

rule . . . in the specific context of plan confirmation.”) internal quotations omitted. This Court

has held that the Absolute Priority Rule does not apply to settlement agreements, even with

carve-outs because: (i) settlement agreements are not plans and (ii) carve-outs from collateral

proceeds are property of the secured creditor rather than the estate and thus not subject to

distribution under the Bankruptcy Code’s priority scheme. See In re World Health Alts., Inc., 344

B.R. 291, 298-99 (Bankr. D. Del. 2006) (approving a settlement agreement with a $1.6 million

distribution to unsecured creditors from “gifted” carve-out of lien proceeds and noting that there

were no prospects for a plan of reorganization and conversion was imminent).

43. Further, this Court has approved settlements similar to the Stipulation. See In re.

Distributed Energy Sys., Corp., 2009 WL 1458175 at *4 (Bankr. D. Del. May 18, 2009)

(approving Bankruptcy Rule 9019 settlement agreement between the debtor, official committee

of unsecured creditors and prepetition secured lender to distribute a portion of the proceeds of

collateral of the latter to general unsecured creditors); In re Pappas Telecasting Inc., Case No.

08-10916 (PJW) (Bankr. D. Del. May 14, 2009) (same); In re PSO Success Corp., Case No. 04-

13030 (MFW) (Bankr. D. Del. Feb. 10, 2006) [D.I. 414] (approving Bankruptcy Rule 9019 letter


EAST\167602754.7 14

agreement between the debtor, official committee of unsecured creditors and a secured creditor

where the secured creditor granted a distribution for the exclusive benefit of general unsecured

creditors a collateral carve-out from its liens).

44. Here, the Stipulation is reasonable, does not violate the Absolute Priority Rule

because it is inapplicable, and is the result of extensive arm’s-length, good faith negotiations

between the Parties. Indeed, because the Stipulation removes the substantial expense and risk

associated with litigation with Wells Fargo and the Committee regarding the exit from this

chapter 11 case or the Prepetition Obligations, the Stipulation is in the best interest of the Debtor

and its creditors.

NOTICE

45. Notice of this Motion has been provided to: (i) the Office of the United States

Trustee for the District of Delaware; (ii) the United States Attorney for the District of Delaware;

(iii) counsel to the Committee; (iv) counsel to Wells Fargo Capital Finance (UK) Limited; and

(v) any party that has requested notice pursuant to Bankruptcy Rule 2002. Due to the nature of

the relief requested in this Motion, the Debtor respectfully submits that no further notice of this

Motion is required.

[Remainder of Page Intentionally Left Blank]


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CONCLUSION

WHEREFORE, the Debtor respectfully requests that the Court enter the Proposed Order,

substantially in the form attached hereto as Exhibit A, granting the relief requested herein and

granting such other and further relief as the Court deems just and proper.

Dated: July 25, 2019 Wilmington, Delaware

Respectfully submitted, DLA PIPER LLP (US)

/s/ Stuart M. Brown Stuart M. Brown (DE 4050) 1201 North Market Street, Suite 2100 Wilmington, Delaware 19801 Telephone: (302) 468-5700 Facsimile: (302) 394-2341 Email: [email protected] -and-

Richard A. Chesley (admitted pro hac vice) 444 West Lake Street, Suite 900 Chicago, Illinois 60606 Telephone: (312) 368-4000 Facsimile: (312) 236-7516 Email: [email protected] Jamila Justine Willis (admitted pro hac vice) 1251 Avenue of the Americas, 27th Floor New York, New York 10020 Telephone: (212) 335-4500 Facsimile: (212) 335-4501 Email: [email protected]

Counsel to the Debtor


EAST\168294312.1


--------------------------------------------------------------- In re:

L.K. BENNETT U.S.A, INC.,1

Debtor. ---------------------------------------------------------------

x : : : : : : x

Chapter 11 Case No. 19-10760 (JTD) Hearing Date: August 15, 2019 at 10:00 a.m. (ET) Obj. Deadline: August 8, 2019 at 4:00 p.m. (ET)

NOTICE OF THE MOTION OF THE DEBTOR FOR ENTRY OF AN ORDER PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE AND

BANKRUPTCY RULE 9019 APPROVING PROPOSED STIPULATION CONCERNING THE COMMITTEE CARVE-OUT

PLEASE TAKE NOTICE that, on July 25, 2019, the above-captioned debtor (the

“Debtor”) filed the Motion of the Debtor for Entry of an Order Pursuant to Section 363 of the Bankruptcy Code and Bankruptcy Rule 9019 Approving Proposed Stipulation Concerning the Committee Carve-Out (the “Motion”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

PLEASE TAKE FURTHER NOTICE that any responses to the Motion, if any, must

be in writing, filed with the Clerk of the Bankruptcy Court, 824 North Market Street, 3rd Floor, Wilmington, Delaware 19801, and served upon and received by the undersigned counsel for the Debtor on or before August 8, 2019 at 4:00 p.m. (ET).

PLEASE TAKE FURTHER NOTICE that if a response is timely filed, served and

received, you or your attorney must attend the hearing on the Motion scheduled to be held before The Honorable John T. Dorsey at the Bankruptcy Court, 824 North Market Street, 5th Floor, Courtroom 4, Wilmington, Delaware 19801 on August 15, 2019 at 10:00 a.m. (ET).

1 The last four digits of the Debtor’s federal tax identification number are (6607). The mailing address for the Debtor is 595 Madison Avenue, New York, New York 10022.

Case 19-10760-JTD Doc 219-1 Filed 07/25/19 Page 1 of 2

EAST\168294312.1

IF NO REPONSES TO THE MOTION ARE TIMELY FILED, SERVED, AND RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE BANKRUPTCY COURT MAY GRANT THE RELIEF REQUESTED BY THE MOTION WITHOUT FURTHER NOTICE OR HEARING.

Dated: July 25, 2019 Wilmington, Delaware

Respectfully submitted, DLA PIPER LLP (US)

/s/ Stuart M. Brown Stuart M. Brown (DE 4050) 1201 North Market Street, Suite 2100 Wilmington, Delaware 19801 Telephone: (302) 468-5700 Facsimile: (302) 394-2341 Email: [email protected] -and-

Richard A. Chesley (admitted pro hac vice) 444 West Lake Street, Suite 900 Chicago, Illinois 60606 Telephone: (312) 368-4000 Facsimile: (312) 236-7516 Email: [email protected] Jamila Justine Willis (admitted pro hac vice) 1251 Avenue of the Americas New York, New York 10020 Telephone: (212) 335-4500 Facsimile: (212) 335-4501 Email: [email protected]



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EXHIBIT A

Proposed Order


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--------------------------------------------------------------- In re: L.K. BENNETT U.S.A, INC.,1 Debtor.

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Chapter 11 Case No. 17-12082 (JTD) (Jointly Administered) Re D.I.: _____

ORDER PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 9019 APPROVING PROPOSED STIPULATION

CONCERNING THE COMMITTEE CARVE-OUT

This matter coming before this Court upon the Motion of the Debtor Pursuant to Section

363 of the Bankruptcy Code and Bankruptcy Rule 9019 Approving Proposed Stipulation

Concerning the Committee Carve-Out (the “Motion”)2 filed by the above-captioned debtor (the

“Debtor”) for entry of an order, pursuant to section 363 of the Bankruptcy Code and Bankruptcy

Rule 9019, approving and authorizing the Stipulation, attached hereto as Exhibit 1, concerning

the Committee-Carve Out by and among the Debtor, the Committee and Wells Fargo; and the

Court having reviewed the terms of the Stipulation; and the Court having found that jurisdiction

is proper pursuant to 28 U.S.C. §§ 157 and 1334; and the Court having found that this is a core

proceeding pursuant to 28 U.S.C. § 157(b)(2); and the Court having determined that the relief

sought in the Motion is in the best interests of the Debtor, its estate and creditors; and the Debtor

having provided appropriate notice and an opportunity for a hearing, and there being no other or

further notice required under the circumstances; and the Court having determined that the legal

and factual bases set forth in the Motion establish just cause for the relief granted herein; and

1 The last four digits of the Debtor’s federal tax identification number are (6607). The mailing address for the Debtor is 595 Madison Avenue, New York, New York 10022. 2 Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Motion.


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after due deliberation and sufficient cause appearing therefor,

IT IS HEREBY ORDERED, THAT:

1. The Motion is GRANTED as set forth in this Order.

2. The Debtor is authorized to enter into the Stipulation with the Committee

and Wells Fargo, which is approved in all respects.

3. The Release is hereby authorized and approved.

4. The Parties are authorized to take all actions necessary to effectuate the

relief granted pursuant to this Order in accordance with the terms of the Stipulation and related

documents.

5. The Stipulation, including the releases granted thereby, shall become

effective immediately upon the later of: (i) the entry of a final order by this Court approving the

Dismissal Procedures and (ii) the entry of a final order by this Court approving the Stipulation.

6. The Court shall retain jurisdiction to hear and determine all matters arising

from implementation of this Order.


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EXHIBIT 1

Stipulation


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------------------------------------------------------------- In re: L.K. BENNETT U.S.A, INC.,1

Debtor. -------------------------------------------------------------

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Chapter 11 Case No. 19-10760 (JTD)

STIPULATION CONCERNING COMMITTEE CARVE-OUT

IT IS HEREBY agreed and stipulated (this “Stipulation”) by and among the above-

captioned debtor (the “Debtor”), Wells Fargo (defined below) and the Committee (defined below

and, together with Wells Fargo, the “Parties”), by and through their respective counsel, that:

1. On or about October 10, 2013, the Debtor entered into that certain Facility

Agreement among LKB UK (defined below) and L.K. Bennett U.S.A, Inc. as borrowers, certain

guarantors thereto, Wells Fargo Capital Finance (UK) Limited and Wells Fargo Bank, N.A.

(London Branch) as original lenders and Wells Fargo Capital Finance (UK) Limited as agent,

arranger and security trustee (collectively, “Wells Fargo”) in accordance with which Wells Fargo

extended loans and other financial accommodations to LKB UK, the Debtor and certain of its

affiliates (the “Secured Facility”). The Debtor is both a borrower and guarantor under the

Secured Facility.

2. The Debtor also entered into that certain US Security and Pledge Agreement

among LKB UK, as grantor, L.K. Bennett U.S.A, Inc., as US Borrower, and Wells Fargo Capital

Finance (UK) Limited as collateral agent on or about October 10, 2013 (the “US Security

Agreement,” and together with the Secured Facility and all related security and other

1 The last four digits of the Debtor’s federal tax identification number are (6607). The mailing address for the Debtor is 595 Madison Avenue, New York, New York 10022.


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instruments, documents, guarantees and agreements, and recorded documents and notices, the

“Prepetition Credit Documents”). The US Security Agreement evidenced a grant of first-priority

security interests and liens in favor of Wells Fargo in all of the Debtor’s assets, including all of

the Debtor’s inventory, accounts and accounts receivable, deposit accounts, contract rights and

the proceeds of the foregoing (collectively, the “Prepetition Collateral”), to secure payment of

the obligations incurred under the Prepetition Credit Documents.

3. On April 3, 2019 (the “Petition Date), the Debtor filed with this Court a voluntary

petition for relief under title 11 of chapter 11 of the United States Code (the “Bankruptcy

Code”). On April 16, 2019, the Office of the United States Trustee for the District of Delaware

(the “U.S. Trustee”) appointed an official committee of unsecured creditors (the “Committee”).

4. As of the Petition Date, the aggregate outstanding amount owed by the Debtor

under the Prepetition Credit Documents was not less than $12,151,131.01, plus interest, fees,

costs or other charges or amounts paid prior to the Petition Date in accordance with the

Prepetition Credit Documents (collectively, the “Prepetition Obligations”), which Prepetition

Obligations are secured by the Prepetition Collateral.

5. Wells Fargo has allowed the Debtor to use Cash Collateral (as that term is defined

in section 363(a) the Bankruptcy Code) to operate its business and liquidate its assets during this

chapter 11 case pursuant to the following orders entered by this Court: (i) Agreed Interim Order

(I) Authorizing the Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying

the Automatic Stay and (IV) Scheduling a Final Hearing [D.I. 53]; (ii) Second Agreed Interim

Order (I) Authorizing Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying

the Automatic Stay and (IV) Scheduling a Final Hearing [D.I. 96]; (iii) Final Agreed Order (I)

Authorizing Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the

Automatic Stay and (IV) Scheduling a Final Hearing [D.I. 151]; and (iv) Order (I) Extending


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Period of Authorized Use of Cash Collateral (II) Granting Adequate Protection, and (III)

Modifying the Automatic Stay [D.I. 184] (collectively, the “Cash Collateral Orders”).2

6. The Debtor has liquidated3 its inventory as well as the furniture fixtures and

equipment (“FF&E”) located at premises it formerly leased, has abandoned any remaining

inventory4 and is preparing for the wind-down of its business and estate and exit from this

chapter 11 case. The estimated ending cash balance of the net proceeds of such liquidation,

including a subtraction for the adequate protection payment to Wells Fargo to pay off the

Primary Borrowing (as defined in the Final Agreed Cash Collateral Order) of approximately

$516,499 made on July 2, 2019, and fund reserves for the payment of estimated administrative

expenses and priority claims, including fees for professionals retained in this chapter 11 case, is

$1,129,392 (the “Liquidation Proceeds”).

7. Wells Fargo has agreed to extend the use of Cash Collateral for the orderly wind-

down of the Debtor’s estate and the Debtor’s exit from this chapter 11 case.

8. The Debtor estimates that the total amount of liquidated, nondisputed, nonpriority

unsecured claims against the Debtor’s estate as of the date hereof is $862,000 (the “General

Unsecured Claims”), not including the trade payable general unsecured claim in the amount of

$21,765,708.84 (the “Parent Claim”) held by L.K. Bennett Limited (“LKB UK”), the Debtor’s

parent company.

9. Pursuant to the Cash Collateral Orders and Prepetition Credit Documents, Wells

Fargo has a valid and perfected security interest in all of the Debtor’s assets, including the

2 Any term used but not defined in this Stipulation shall be given the meaning ascribed to it in the Cash Collateral Orders.

3 The Debtor is currently engaged in negotiations regarding the possible bulk sale of remnant inventory and FF&E of the Debtor that it has not already abandoned.

4 The Debtor is currently determining the treatment as far as abandonment of inventory remaining in the distribution center of Bloomingdale’s, one of the Debtor’s former store-in-store concessions.


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Liquidation Proceeds, which a deficiency claim for the Prepetition Obligations or the 507(b)

Claim against the Debtor’s estate would exceed.

10. The Debtor’s estate has no unencumbered funds or property with which to satisfy

General Unsecured Claims or to administer this chapter 11 case.

11. If the Court were to dismiss or convert this chapter 11 case to one under chapter 7

of the Bankruptcy Code, the holders of General Unsecured Claims would receive no distribution

and administrative expense claimants would likely either receive no distribution or not be paid in

full.

12. Contemporaneously with this Stipulation, the Debtor filed (i) the Motion of the

Debtor to Dismiss the Chapter 11 Case and for Entry of an Order Establishing the Dismissal

Procedures [D.I. 214], whereby it seeks to dismiss this chapter 11 case and the entry of an order

authorizing procedures for such dismissal (the “Dismissal Procedures”) and (ii) the Order (I)

Further Extending Period of Authorized Use of Cash Collateral (II) Granting Adequate

Protection, and (III) Modifying the Automatic Stay under certification of counsel, whereby the

Debtor’s authority to use Cash Collateral would be further extended through and including the

entry of final orders by the Court approving the Dismissal Procedures and the Stipulation.

13. Following negotiations among the Parties, Wells Fargo has agreed to fund a

distribution to the holders of certain allowed general unsecured claims from the Liquidation

Proceeds on the following terms:

i. Upon the later of: (i) the date the Court enters a final order approving the Dismissal Procedures and (ii) the date the Court enters a final order approving the Stipulation (the “Stipulation Effective Date”), the Debtor shall: (i) transfer cash from the Liquidation Proceeds in the amount of $50,000 to the Committee to fund a reserve to pay fees and expenses incurred by the Committee’s professionals in administering the Dismissal Procedures and conducting claims reconciliation (the “Committee Administration Reserve”); (ii) transfer cash from the Liquidation Proceeds in the amount of $200,000 to the Committee to fund a reserve to be


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distributed—in addition to the balance of the Committee Administration Reserve (the “Committee GUC Reserve” and, together with the Committee Administration Reserve, the “Committee Carve-Out”) by the Committee on a pro-rata basis in full satisfaction of the allowed, non-insider general unsecured claims against the Debtor, not including any deficiency claims of Wells Fargo and the Parent Claim (collectively, the “Allowed General Unsecured Claims”); (iii) transfer cash from the Liquidation Proceeds in the amount of $127,923 to the Committee to fund a reserve to be distributed by the Committee to holders of estimated prepetition priority claims and postpetition administrative expense claims (the “Priority Claim Reserve”,) the balance of which the Committee shall transfer to Wells Fargo; and (iv) reserve cash from the Liquidation Proceeds in the amount of $1,706,854 to fund a reserve administered by the Debtor’s professionals to pay the fees for services rendered and reimburse expenses approved on a final basis by the Court of professionals retained in this chapter 11 case (the “Final Fee Reserve”), the balance of which the Debtor shall transfer to Wells Fargo; and (v) transfer all of the Debtor’s remaining assets to Wells Fargo in full and final satisfaction of its claims against the Debtor’s estate.5

ii. Upon the Stipulation Effective Date, for good and valuable consideration, the adequacy of which is hereby confirmed, to the fullest extent permitted under applicable law, Wells Fargo will be deemed released by the Debtor and its estate from any claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action and liabilities whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter arising, in law, equity, or otherwise that are based in whole or part on any act omission, transaction, event, or other occurrences, whether direct or derivative, taking place on or prior to the Stipulation Effective Date in connection with, or related to, the Debtor’s estate and its operations, the Prepetition Credit Documents or this chapter 11 case other than with respect to liabilities arising out of or relating to any act or omission of Wells Fargo that is determined by a final order of a court of competent jurisdiction to constitute actual fraud, willful misconduct, or gross negligence (the “Release”).

14. This Court retains jurisdiction with respect to all matters arising from the

implementation, interpretation and enforcement of this Stipulation.

5 For the avoidance of doubt, there will be no distribution with respect to the Parent Claim or Wells Fargo on account of its deficiency claim.


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15. This Stipulation shall be effective upon the later of: (i) the entry of a final order

by the Court approving the Dismissal Procedures Order and (ii) the entry of a final order by the

Court approving this Stipulation.

[Remainder of Page Intentionally Left Blank]


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Stuart M. Brown (DE 4050) DLA PIPER LLP (US) 1201 North Market Street, Suite 2100 Wilmington, Delaware 19801 Telephone: (302) 468-5700 Facsimile: (302) 394-2341 Email: [email protected] -and- Richard A. Chesley (admitted pro hac vice) 444 West Lake Street, Suite 900 Chicago, Illinois 60606 Telephone: (312) 368-4000 Facsimile: (312) 236-7516 Email: [email protected] -and- Jamila Justine Willis (admitted pro hac vice) 1251 Avenue of the Americas New York, New York 10020 Telephone: (212) 335-4500 Facsimile: (212) 335-4501 Email: [email protected]


Georgia M. Quenby Victoria H. Thompson Morgan Lewis & Bockius UK LLP Condor House, 5-10 St. Paul’s Churchyard London, EC4M 8AL, United Kingdom Email: [email protected] [email protected] -and- Derek C. Abbott (DE 3376 ) Joseph C. Barsalona II (DE 6102) Morris, Nichols, Arsht & Tunnell LLP 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801 Email: [email protected] [email protected] Counsel for Wells Fargo

Dated: July 24, 2019 Dated: July 24, 2019

Christopher Ward (DE 3877) Brenna Dolphin (DE 5604 ) Polsinelli, PC 222 Delaware Avenue, Suite 1101 Wilmington, Delaware 19801 Email: [email protected]

[email protected]

Counsel to the Committee

Dated: July 24, 2019


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