Saks Global’s vendors have long had pointed questions for Richard Baker, former chief executive officer and chairman of the retailer.
But while they were looking for information on their past-due invoices, the committee representing unsecured creditors in the company’s bankruptcy now has its own, much more in-depth questions — and is looking to compel Baker to answer.
In filings to the court, the committee made what is known as a “Rule 2004 Request” that Baker produce a long list of documents pertaining to his time at Saks Global, including his correspondence with former CEO Mark Metrick, including documents tied to the Neiman Marcus deal that loaded up the company with debt and more.
Rule 2004 can facilitate a deep dive into a company and help creditors uncover assets that they can then lay claim to. While the committee represents all unsecured creditors, its members are drawn from some of the biggest players in fashion that were owed money by Saks Global, including Amazon, Chanel Inc., LVMH Moët Hennessy Louis Vuitton and Ermenegildo Zegna.
In the filing, the creditor committee cited the rule and said, “Richard A. Baker is commanded to produce the documents and electronic information” and provided a 13-point list of documents required no later than April 23.
Among them are:
- Documents sufficient to show all transfers, or any receipt of value, to you or your affiliates from the debtors [Saks Global] including, but not limited to, loans, dividends, distributions or shares.
- All agreements between you or your affiliates on the one hand, and the debtors on the other hand.
- All documents and communications relating to art pieces, jewelry or other tangible property, that you or your affiliates lent, sold or leased to the debtors.
- All documents and communications between you and Marc Metrick relating to the debtors.
- All documents and communications relating to the acquisition of Neiman Marcus Group.
- All documents and communications relating to former Lord & Taylor locations that the debtors leased, paid for or otherwise had any interest in.
The creditors sent a draft of “diligence requests” to Baker on March 18, but he has so far refused them through his counsel, Rachel Strickland at Ropes & Gray.
Strickland — who is also representing Ian Putnam, former CEO of Saks Global Properties & Investments, in a similar request — did not immediately return a WWD query.
“There can be no meaningful dispute that Mr. Baker has responsive information to which the committee is entitled,” the creditors committee argued in the filings. “Mr. Baker was a hands-on executive involved in nearly every key transaction the company entered into, including the Neiman acquisition and the LME,” referring to the liability management exercise last summer that reworked the company’s debt.
Further, the creditors said that Saks Global, now led by CEO Geoffroy van Raemdonck, “took the position that their current personnel are not sufficiently knowledgeable to testify.”
“While the committee does not seek deposition testimony from Mr. Baker at this time, the debtors’ admissions and other related conversations with the debtors’ counsel reflect that Mr. Baker was and remains a source of key diligence that the committee requires. Mr. Baker can no longer delay providing that diligence,” the filing said.
David Banker, an attorney representing creditors in the case, said Rule 2004 is something of a “fishing exhibition” to find any hidden value in the case — from assets that were inappropriately transferred outside the company to the right to sue former management.
He said Baker has a week to object to the request, which would then put the matter before federal bankruptcy judge Alfredo Pérez, who would decide just what the former CEO has to disclose.
Banker said unsecured creditors are not anticipating a “substantial recovery” given how much is owed to secured lenders in the case.
“Most people have been sensitized by this time,” he said. “They realize their general unsecured claim more likely than not is going to be worth very little in a case where [the company] is so underwater. Even if you found $100 million worth of something that was unencumbered — to the extent that the secured debt is not fully satisfied, they’re going to have a deficiency claim for the difference.”
But Banker said the creditors committee could use anything they find to bargain with lenders.
“If you can find a cause of action [to file a lawsuit] that’s real, where the money’s coming from not the lender, but outside the estate, that’s where you can start to negotiate,” he said.
While the current operating company has been moving through the bankruptcy process and has agreed to a business plan for the future with lenders and submitted a barebones plan of reorganization to the court, there are still matters to be decided that are important to vendors.
For instance, Banker said any one who Saks Global paid in the 90 days before the January filing could see those payments clawed back by the court, which can also decide to let those payments stand, but hasn’t settled the issue yet.
“That’s a big deal,” he said. “Everyone who received payments within 90 days is still under risk.”
