Sports Authority has asked a bankruptcy judge to determine whether consignment sellers are entitled to the proceeds from its sales of $85 million worth of consigned goods on its shelves.
Since Sports Authority filed bankruptcy March 2, consignment vendors have been seeking to ensure that the revenue generated from their goods is not pocketed by the retailer’s creditors. Sports Authority has been conducting going-out-of-business sales at 140 of its roughly 450 stores ahead of an April 28 deadline to find a buyer or come up with a reorganization plan.
U.S. Bankruptcy Judge Mary Walrath initially authorized Sports Authority to sell consigned goods on a business-as-usual basis, with the proceeds being deposited in an escrow account. She also directed the company to file any suits challenging vendors’ claims by March 23.
On Tuesday, Sports Authority brought such suits against more than 160 vendors. “The suits are designed to determine who gets the money when consigned goods are sold, vendors or the banks,” the Wall Street Journal said.
“Dozens” of suppliers have demanded that the company stop selling their consigned goods, Sports Authority lawyer Robert Klyman said at a court hearing Wednesday. Complying with those requests “would be devastating to the business,” he said.
The liquidation sales are part of Sports Authority’s bid attempt to increase liquidity in the short term and free up more money for lenders to which it owes more than $1 billion.
According to the WSJ, Sports Authority and its top lenders have indicated they are testing for defects in the consignment deals to upset vendors’ claims and, if the lawsuits succeed, vendors that thought they had secured claims will end up as unsecured creditors.
The company filed Chapter 11 about a month after missing a $21 million interest payment on outstanding notes.
“With big rival Dick’s Sporting Goods Inc. poised to sweep up most of the business that will be left behind if Sports Authority disappears, observers are predicting there is a slim chance of survival for a significant group of stores,” the Journal reported.