The gloves are coming off in RadioShack’s bankruptcy case as creditors start fighting for position to recover whatever they can.
Witness a 40-page court filing on behalf of unsecured creditors, filed Tuesday, challenging RadioShack’s plan to sell half its stores to the Standard General hedge fund.
It starts with a quotation from Ernest Hemingway’s The Sun Also Rises.
“How did you go bankrupt?” Bill asked. “Two ways,” Mike said, “gradually, then suddenly.”
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This is how the media has described the Debtors. Bloomberg went so far as to call RadioShack’s path into bankruptcy “an assisted suicide.” The problem is, there’s no suicide note, and there are too many unanswered questions.
Then, in excruciating detail, the brief lays out the progression of events since late 2013 that led to RadioShack’s bankruptcy filing this month.
The crux of the argument: RadioShack should have filed for bankruptcy much sooner, and preserved assets so creditors could get their money back. It points out that as early as last March, the company proposed closing up to a quarter of its stores, only to be blocked by lenders such as Salus Capital Partners.
That set the stage for Standard General to move in. The filing alleges that the hedge fund, which became a major shareholder, was able to attain senior lender status through a rescue loan last fall, which positioned it to negotiate an “insider deal” to buy about half of RadioShack’s stores at a bargain price.
The brief details steps taken to exert influence those within RadioShack’s corporate suite, and mentions that fact that CEO Joseph Magnacca was appointed last summer to the board of American Apparel, another company owned by Standard General.
Nothing suggests that RadioShack’s management had any basis to continue operating money-losing stores, and reports indicate that the company was losing approximately $1 million per day. Nevertheless, management entered into the October 2014 (rescue loan) Transaction, not only increasing losses by delaying an inevitable bankruptcy filing, but actually piling additional debt on the beleaguered company — and paying for the privilege to do so. This raises the question of whether the Debtors’ officers and directors breached their duties.
The unsecured creditors say they want to depose present and former directors and officers to find out exactly how the decisions were made. Among the former executives they’d like to speak with: Dorvin Lively, Troy Risch, John Feray, Mark Barfield and Telvin Jeffries.