Bankruptcy judge says lender dispute could block sale of RadioShack stores

A hearing on RadioShack’s plan to sell about 1,700 stores to its biggest shareholder is set to continue today, with the prospect of thousands of job losses if the deal falls through.

U.S. Bankruptcy Judge Brendan Shannon extended the hearing after listening to arguments from plan supporters and opponents in his Wilmington, Del., courtroom for a third day Monday.

“There are over 7,000 jobs and very large business at stake,” Shannon said.

Standard General’s bid to take over the stores and run them in a co-branding arrangement with Sprint has met opposition from some creditors, including Salus Capital Partners, and has been threatened by infighting among lender groups. While its bid would keep the business operating, Salus has teamed with liquidators to shut the company down.

Last week, RadioShack said Standard General had prevailed in an auction for company assets. On Friday, Salus indicated that it planned to make a new bid after calling the auction process a sham. But citing “new developments” Sunday, Salus’ attorney Anthony Clark sent a letter to the court saying no new bid would be forthcoming.

In court on Monday, Shannon said that even if he eventually gives Standard General permission to buy the Fort Worth-based company, the sale may not close because of continuing disputes among the retailer’s lenders.

The buyer “may end up with a sale order it cannot do a lot with,” Shannon said.

A key issue in court is who shall be liable if lower-ranking creditors including Salus successfully sue lenders for pre-bankruptcy actions. The official committee of unsecured creditors is investigating whether some RadioShack lenders could be held responsible for the electronics retailer’s bankruptcy.

One of two lender groups, known as the ABL lenders, claim their credit agreements give them protection from potential judgments. They have demanded that $120 million from the sale of RadioShack assets be set aside either as cash or equity in the company, which would be used to pay a judgment.

Shannon said he was “troubled” by the parties’ positions on certain issues and doesn’t want to turn the company over to liquidator Hilco Merchant Resources.

“If that is the way this case needs to turn out, that is how it will turn out,” he said. “But I don’t think it’s the best choice for stakeholders in the process and I will use whatever authority and power I have to move to what I think is a fair and appropriate result.”

RadioShack filed for bankruptcy in early February after nearly three years of losses and declining sales. Since filing, the company has closed at least 1,400 of its 4,000 U.S. stores.

This story was originally published March 30, 2015 at 11:37 AM with the headline "Bankruptcy judge says lender dispute could block sale of RadioShack stores."