Neiman Marcus has hit a bump in its efforts to emerge from bankruptcy, as a director asked to investigate allegations of fraudulent asset transfers was described as “borderline incompetent” by a federal judge.
The blistering criticism came during a court hearing on Friday over the status of the upscale department store chain’s profitable online business, MyTheresa.com.
Some creditors are upset because MyTheresa was originally pledged as collateral for the retailer’s debt, only to be moved beyond their reach in a controversial restructuring two years ago.
Resolving the row is central to Neiman’s hopes of finalising a quick restructuring as planned by July — and avoiding a more costly and time-consuming process that could spook customers and vendors.
Friday’s court hearing was triggered after Marble Ridge, a hedge fund that has challenged the MyTheresa asset transfer, asked for a court-appointed examiner to lead an investigation into the manoeuvre. The fund’s effort failed, but Neiman’s own plan to resolve the issue came under fire from Texas bankruptcy judge David Jones.
Neiman had argued that the investigation could be left to two “experienced and seasoned restructuring experts”, Marc Beilinson and Scott Vogel, who were appointed to the retailer’s board in April. Mr Jones asked Mr Beilinson to summarise his progress and explain the issues he was investigating.
“What he gave me was a line of bull,” the judge said afterwards.
Neiman Marcus declined to comment. Mr Beilinson did not respond to request for comment.
The extraordinary exchange suggests Neiman will face intense scrutiny on a restructuring proposal that would see most of its equity pass to secured creditors, all but wiping out Ares and the Canada Pension Plan Investment Board, which together acquired the retailer for $6bn in 2013.
The upscale department store has been struggling with excessive debt for years, and filed for bankruptcy in early May after the coronavirus pandemic shuttered its 43 US stores.
Both Ares and CPPIB are supporting the restructuring proposal which, if approved by a court, would prevent any attempt to sue them for fraud or breach of duty over the MyTheresa transaction.
The judge ultimately declined to launch a court-ordered investigation into the MyTheresa transfer, and Marble Ridge turned down his offer of a more limited probe into “whether or not the independents [a group of directors who include Mr Beilinson] are doing their job”.
A separate investigation into the transfer is already being carried out by a committee of unsecured creditors. Marble Ridge was happy that Mr Beilinson’s role in Neiman’s own investigation had received scrutiny in court, a person familiar with its thinking said.
Mr Beilinson has played key roles in several high-profile restructurings, including those of gaming empire Caesars and hotel group Innkeepers USA.
Both of those companies had been bought by affiliates of another private equity firm, Apollo Global Management, in debt-fuelled deals that ended in bankruptcy. Mr Beilinson is also lead independent director of Apollo’s life insurance affiliate, Athene Holding, which has been trying to dispel investors’ concerns about governance.
“If he’s going to serve in this capacity he needs to understand his job and he cannot simply give lip-service knowing a bunch of buzzwords,” Mr Jones said in court on Friday. “I do not want to see a fiduciary to this estate ever appear to me again uneducated, unprepared, and borderline incompetent.”