Neiman’s Bankruptcy Puts Spotlight On Mytheresa Transfer

The asset transfer of the online shopping retailer, what some creditors have called Neiman’s “crown jewel,” looms over the proceedings.

Neiman Marcus Group’s bankruptcy is getting heated. 

The luxury retailer’s efforts to reorganize in court have fueled an ongoing conflict and scrutiny over the role of its leveraged buyout sponsors  — private equity fund Ares Management and investment fund Canada Pension Plan Investment Board — in the transfer of the online retailer Mytheresa before the bankruptcy. 

On Friday, questions about the transfer —  specifically, who should investigate it during Neiman’s bankruptcy proceedings —  was the subject of a six-hour hearing before a Texas bankruptcy judge, who ultimately directed the unsecured creditors committee in the case, and its attorney Richard Pachulski of Pachulski Stang Ziehl & Jones, to take a closer look. 

Neiman’s had sought to head off some of this conflict early in the case, and entered into its Chapter 11 proceedings this month with two “disinterested managers” in tow who would investigate the Mytheresa transfer, among other issues. 

The managers, Marc Beilinson and Scott Vogel, have been members of the board of managers of Neiman Marcus Group LTD LLC since just April, and are represented in the proceedings by the law firm Willkie Farr & Gallagher LLP. 

Friday’s lengthy hearing centered around whether those managers were truly independent, a question that had been raised by Neiman’s unsecured creditor, Marble Ridge Capital, which had sought the appointment of an independent examiner to look at the transactions. 

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Marble Ridge, which ultimately withdrew that motion Friday in light of Judge David R. Jones’ direction of the creditors committee to take a closer look, has argued that Beilinson and Vogel are working “at the behest” of Ares. Marble Ridge is part of the creditors committee.  

Neiman’s has said the managers’ investigation has already been in progress for weeks at this point, and sought to portray Marble Ridge’s arguments as a ploy for leverage in the case. 

On Friday, the judge indicated he was concerned about the reliability of any findings by Beilinson, who had appeared at the hearing to answer questions about his role and independence. 

“I do not want to see a fiduciary to this estate ever appear in front of me, ever again, unprepared, uneducated, and borderline incompetent,” Jones said. 

The Mytheresa transfer, the subject of litigation since before the bankruptcy, involves what some noteholders have alleged is a “fraudulent conveyance” directed by Ares. 

One lawsuit in New York state court by a trustee for certain noteholders alleged the transfer was of an asset worth $1 billion for “no consideration,” and with the strategic goal of keeping it from creditors. The suit was still pending at the time of Neiman’s bankruptcy filing. Marble Ridge had itself also brought a suit over the transfer in Texas state court, but that case was dismissed. 

Neiman’s has argued that Marble Ridge is seeking leverage after choosing not to participate in its restructuring plans, which the retailer said has the support of the holders 99 percent of its first lien term loans, 100 percent of their second lien notes, 70 percent of their third lien notes, and others. 

The seeds of the dispute over the independence of the managers who would investigate conflicts in the case including the Mytheresa transfer, were sown at Neiman’s first day of bankruptcy hearing earlier this month. 

Beilinson and Vogel’s attorney Jennifer Hardy of Willkie Farr said at the retailer’s first day hearing that the managers had “broad corporate authority to investigate and analyze, and importantly, to make any decisions on behalf of the company with respect to any issue that they believe should be looked at in connection within these cases, where a conflict may exist between the company and its shareholders or other insiders,” including the Mytheresa transfer.  

Hardy said that the managers are “completely independent and captive to no one in the capital structure” and that their duty “is solely to the estate.”

Beilinson and Vogel will still continue their investigation. But it appears that the unsecured creditors committee— which includes Marble Ridge, Simon Property Group, Chanel, and Kering Americas Inc.— will also be looking into the issues, and have an audience with the judge in the case. 

Representatives for Neiman Marcus and Marble Ridge declined to comment Friday.