Sears‘ unsecured creditors filed an objection Thursday afternoon to Chairman Eddie Lampert’s deal to save the company through his hedge fund, ESL Investments, requesting a public hearing to air its grievances.
In documents filed with with Southern District of New York Bankruptcy Court, the committee said it has uncovered facts that demonstrate Sears’ downfall was “precipitated by years of misconduct by Lampert, ESL, and others against Sears and its creditors,” in addition to the broader challenges facing the retail industry.
“This is a matter of significant public interest and should be heard entirely in open court,” the committee wrote.
A hearing is scheduled for Feb. 1 at the bankruptcy court in White Plains, New York, at which the bankruptcy judge overseeing the case, Judge Robert Drain, will assess the merits of any objections.
Lampert reached a deal with Sears early Wednesday morning to acquire 425 Sears stores and other assets for about $5.2 billion. Sears’ other brands include its Home Services business and Kenmore and DieHard brands.
Lampert, Sears’ biggest creditor, has been under fire from the company’s unsecured creditors since it filed for bankruptcy in October. The group has said there may be claims against Lampert for deals the company did while he was Sears’ CEO and largest shareholder. Those deals include Sears’ spinoff of Lands’ End in 2014 and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears’ properties a year later.
“Sears’s downfall is nothing short of tragic,” the committee wrote in the documents.
“After taking control of Sears in 2005, ESL — acting at all times at founder and namesake Lampert’s direction — engaged in serial asset stripping, taking Sears’s best assets out of the enterprise to shield them from the claims of other creditors and maximize ESL’s investments (in Sears and other entities) in anticipation of these inevitable bankruptcy proceedings.”
The group is demanding from ESL a number pathways that would further its financial recovery from Sears’ bankruptcy. These remedies include that Lampert return to the company the value of Seritage, which the group argues it spun out for less than its actual worth. It is also demanding the “recovery of all ill-gotten gains and compensation for the damages incurred” under Lampert’s leadership.
It also cast doubt on Lampert’s ability to revive the company, saying ESL has “failed to set forth a business plan that offers any viable go-forward path.”
ESL has said it is buying only Sears’ profitable stores, but, as a whole, the company hasn’t turned a profit since 2010.
Sears has until Jan. 29 to respond to any objections to its deal with Lampert.
ESL has previously stressed that all actions taken by Sears while under Lampert’s tenure were approved by the company’s board.
In part of a statement delivered to CNBC through an ESL spokesperson on Thursday, the company said:
“Over the past several months, we have provided countless pages of documents to the Creditors’ Committee and held numerous discussions with their advisors. We have cooperated fully with their review and remain confident that the processes we followed are unimpeachable. We reject any assertion to the contrary and will vigorously contest any effort to assert claims against ESL, its principals or affiliates concerning these transactions.”
