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Keywords

equitytrialtestimonymotionbankruptcywitness testimony
bankruptcy

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In re: Aéropostale, Inc., 555 B.R. 369

Facts

Aéropostale, Inc. filed for bankruptcy with approximately $223 million in outstanding debt, primarily secured by its assets. The debtors sought to equitably subordinate the claims of their Term Lenders, Aero Investors and MGF Holdings, alleging inequitable conduct. The court held a trial with extensive witness testimony and evidence, ultimately concluding that the claims of the Term Lenders would not be subordinated, nor would their ability to credit bid be limited.

Aéropostale, Inc. is a retailer of casual apparel and accessories, serving children and young adults through its stores and website. Aéropostale, Inc. is a publicly traded company, and was until recently listed on the New York Stock Exchange.

Issue

Whether the claims of Aero Investors and MGF Holdings should be equitably subordinated, whether they should be disqualified from credit bidding, and whether their loans should be recharacterized as equity.

The Debtors seek this relief based on their allegations of inequitable conduct by the Term Lenders and certain of their affiliates and the impact on this case of a credit bid by the Term Lenders.

Rule

Equitable subordination under Section 510(c) of the Bankruptcy Code requires a showing of inequitable conduct that resulted in harm to other creditors.

Equitable subordination under Section 510(c) of the Bankruptcy Code requires a showing of inequitable conduct that resulted in harm to other creditors.

Analysis

The court analyzed the evidence presented during the trial, including witness testimonies and documents, and found that the allegations against the Term Lenders did not meet the legal standard for equitable subordination. The court noted that the Term Lenders acted within their rights and that the Debtors failed to demonstrate that the Term Lenders' conduct was inequitable or harmful to other creditors.

The Court is mindful of the high stakes in this case for Aéropostale. But the Court is duty bound to apply the applicable law to the facts of the case, and the Court's equitable powers are not boundless.

Conclusion

The court denied the Debtors' motion, concluding that there was no basis to equitably subordinate the Term Lenders' claims, limit their ability to credit bid, or recharacterize their loans as equity.

The Court concludes that there is not a basis to equitably subordinate the Term Lenders' claims, limit their ability to credit bid, or recharacterize their loans.

Who won?

Aero Investors LLC and MGF Sourcing Holdings, Limited prevailed in the case as the court found no merit in the Debtors' claims against them.

The Court concludes that there is not a basis to equitably subordinate the Term Lenders' claims, limit their ability to credit bid, or recharacterize their loans.

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