Busy bankruptcy hearing on tap for RadioShack Thursday

RadioShack already faced a busy day in bankruptcy court on Thursday, and Texas Attorney General Ken Paxton only added to the congestion last week by filing papers to establish that holders of $43 million in unredeemed gift cards are entitled to be paid in full.

The Delaware hearing is also when distressed lender Salus Capital Partners will ask the judge to replace the retailer’s management with a trustee to conduct the remainder of the liquidation in Chapter 7. Naturally, Fort Worth-based RadioShack opposes the motion, as do the official unsecured creditors’ committee, landlords, noteholders and Standard General, which bought more than 1,700 stores.

The company and the creditors said RadioShack will have the cash required by bankruptcy law to pay the expenses of the Chapter 11 effort and other priority claims entitled to full compensation. The committee said the judge can sign the confirmation order approving RadioShack’s liquidating Chapter 11 plan as soon as July 22.

At Thursday’s hearing, the judge will also consider procedures for soliciting votes on the liquidating plan filed June 12. Salus is expected to oppose RadioShack’s request for an extension of its exclusive rights to propose a plan. Salus said sale proceeds are being squandered on costs and professional fees incurred in the Chapter 11 effort.

The Texas attorney general sued in bankruptcy court on June 18. He recited how RadioShack always said gift cards will never expire, until the judge signed an order setting a March 31 deadline to redeem them.

The attorney general wants the judge to rule quickly, and without a trial, that gift cards are entitled to payment in full under a plan, in light of Section 507(a)(7) of the Bankruptcy Code, which awards a priority claim of as much as $2,775 for deposits made in connection with sales of property.

The attorney general asked for permission to submit a claim on behalf of Texas residents. He also asked the judge to rule that payments on gift cards will escheat to the states to the extent that consumers don’t make claims.

The gift card dispute raises another potential roadblock both to approval of the Chapter 11 plan and payment to unsecured creditors. If the attorney general prevails, there would be another $43 million in priority claims to be paid in full before unsecured creditors get a dime.

RadioShack filed for Chapter 11 protection in February listing assets of $1.2 billion and debt of $1.39 billion, including $325 million owing on 6.75 percent senior unsecured notes. It had revenue of $2.06 billion over the first three quarters of 2014, resulting in a $314.5 million operating loss and a $396.8 million net loss.

This story was originally published June 24, 2015 at 11:42 AM with the headline "Busy bankruptcy hearing on tap for RadioShack Thursday."