Judge Rejects Shopko’s Bankruptcy Plan

On January 16th, Wisconsin based retail chain Shopko filed for chapter 11 bankruptcy. The company reported having less than $1 billion in assets with outstanding liabilities, running somewhere between $1 billion and $10 billion. As part of bankruptcy proceedings, the U.S. Bankruptcy court had Shopko officials, along with creditors, attorneys and other consultants, draft a bankruptcy plan and submit it to the court for approval. Despite most relevant parties expressing approval for the plan, as well as U.S. Bankruptcy Court Judge Thomas Saladino supporting the effort drafting the plan, Judge Saladino had to ultimately reject it.

Why Was Shopko’s Bankruptcy Plan Rejected?

Under the plan submitted to Judge Saladino, all of Shopko’s bank debt would have been paid off by July. Additionally, the majority of administrative claims would have been paid and a $15.5 million payback from Sun Capital would have been secured. On top of all this, there may have been some money left over to pay some of the unsecured creditors. Why then was this bankruptcy plan rejected by the court? One of the major creditors, McKesson Corporation, told the judge that it had civil fraud claims against no less than four Shopko executives. The plan would have banned all potential claims against Shopko.

McKesson Corp. explained to the bankruptcy court that Shopko executives made false promises in order to keep medication supplies coming to Shopko pharmacies for as long as possible. Shopko never paid for these supplies and McKesson asserts that Shopko owes the company close to $70 million. Although the amount has since been reduced, McKesson maintains that Shopko still owes them $55 million. Furthermore, McKesson alleges that Shopko executives are using the bankruptcy plan to avoid being sued for fraud in Wisconsin. Wisconsin is the company’s state headquarters. Shopko counters by saying McKesson Corp. is being spiteful in holding up the otherwise supported bankruptcy plan.

What are Shopko’s options?

At this point, Shopko has several options in how to proceed. The company may opt to submit another plan. Right now, Shopko has the exclusive right to submit a plan, but this is only for a limited time. If they fail to submit a plan for approval, other parties of the case, including McKesson, could submit their own proposed plans.

Shopko may also want to consider converting the proceedings from chapter 11 bankruptcy to chapter 7. With chapter 11 bankruptcy, there is still a chance that the company could reorganize and continue moving forward. Under chapter 7 bankruptcy, the court would appoint a trustee that would assume control of the company from the executives. Judge Saladino left the decision of how to proceed up to Shopko.

Trusted Bankruptcy Attorneys

No matter your reason for considering bankruptcy, the road ahead may be difficult. There will be countless questions and concerns that will arise. The dedicated Milwaukee bankruptcy attorneys at Hanson & Payne are here to answer your questions and support you throughout the bankruptcy process. Contact us today.