Dive Brief:
- After nearly four years in bankruptcy, Sears Holdings and its one-time creditors said they have reached a settlement with its former CEO and majority owner Eddie Lampert and other investors.
- If approved by a federal bankruptcy judge, the settlement could resolve years-long litigation filed against Lampert and other defendants over allegations of asset stripping and “rank” self-dealing in the years leading to Sears Holdings’ 2018 bankruptcy.
- The settlement would pay plaintiffs $175 million. Of that, $125.6 million would come from insurers, $41.9 million would come from the defendants and $7.5 million would come from shareholding funds.
Dive Insight:
A decade ago, Sears Holdings was a sprawling retailer with thousands of stores under the Sears and Kmart brands, along with major property holdings and valuable owned brands. By the time it filed for bankruptcy, many of Sears Holdings’ stores had closed, major assets — including property, beloved products brands and retail banners such as Sears Canada — had been sold or spun off.
Those sales and spinoffs are the heart of the lawsuit against Lampert and other defendants. Lampert and his hedge fund, ESL Investments, invested and often took controlling stakes in many of the divested assets, including Sears Canada, Lands’ End and Seritage Growth Properties (which included a large portfolio of Sears Holdings’ real estate).
In their complaint, the plaintiffs alleged that “[a]ltogether, Lampert caused billions of dollars of cash and other assets to be transferred to himself, Sears Holdings’s other shareholders and other third parties.”
Lampert and ESL were also on the receiving end of many Sears Holdings’ rent payments (after taking control Seritage), product purchases (via Lands’ End) and interest payments (through loans made to Sears Holdings’ while it made losses in its business).
Today, Sears Holdings is largely a paper entity that has been stuck in Chapter 11 purgatory for years, with the litigation against Lampert and other parties holding up final execution of its bankruptcy plan, approved long ago.
The remaining Sears and Kmarts were sold to Transformco — controlled by Lampert — in early 2019. Since then, most of those stores have closed, leaving just a handful of Kmarts and Sears Holdings department stores open in the U.S.
While the litigation has slogged on, creditors to Sears Holdings have been waiting to get paid something for what they floated to the company. That includes many of the retailer’s suppliers, who have awaited payment for products they shipped to the company years ago now in the weeks leading up to Sears Holdings’ bankruptcy and the months before selling its remaining stores to Transformco.
The time in Chapter 11, and the complexity of the Sears case, made it the most expensive retail bankruptcy of an era filled with them. And the mountain of legal and consulting fees owed by Sears Holdings have made it even harder for vendors to recover losses.
With a settlement, an end to the legal saga of Sears’ bankruptcy may finally be in sight.
