In filings late Tuesday in New York bankruptcy court, the American unit of the Italian-accessories brand said its plan, if it’s approved after a hearing scheduled for Jan. 28, would provide a “lump sum” that would go toward repaying its general unsecured claims.
Under the terms of the plan, the company estimates that those creditors would receive roughly 25 percent of what they’re owed, though actual recoveries may depend on factors including whether the retailer decides to close more stores beyond the four it has already shuttered, and whether the plan has the consent of most of its creditors.
In court filings, Furla USA said it owes some 67 trade creditors and landlords roughly $4.9 million in unsecured trade vendor and lease-related debt. The plan would still be subject to a vote by creditors, though the court is expected to approve a plan that it deems is in the best interests of creditors, and “fair and equitable” under the bankruptcy code.
“Creditors will vote, and then the court will hold a hearing on confirmation of the plan, and it’s our hope that the court will confirm,” Joseph Moldovan of Morrison Cohen LLP, who represents Furla USA in the proceedings, told WWD.
“After the plan is approved, the debtor will begin to make distributions to priority and administrative creditors,” he said.
The process is taking place under a fairly new format called subchapter V of Chapter 11, which is meant to make the reorganization process faster and less expensive for small companies without significant debt burdens. The new model is part of the Small Business Reorganization Act of 2019 that took effect in February.
The subchapter 5 process also would generally allow companies undergoing the process to slowly repay creditors over the course of a few years, but in this case, Furla USA plans to repay its creditors shortly after the plan is effective, Moldovan said.
The company is in discussions with its parent company in Italy, which would be providing funds to satisfy Furla USA’s distribution obligations under the plan. Unlike in traditional Chapter 11 cases, there isn’t an official creditors’ committee, but the process also gets some oversight from a subchapter 5 trustee appointed in the case, who is tasked with reviewing the company’s decisions during the process and reviewing its Chapter 11.
Even though the Chapter 11 plan is being subjected to a vote by creditors, the subchapter 5 process would allow the plan to be confirmed even without a majority of creditors’ support, as long as the court finds it acceptable.