Forever 21 Creditors Face Large Losses Under Bankruptcy Plan

Suppliers, vendors and other unsecured creditors of Forever 21 are “getting smoked” under a restructuring plan that envisions paltry recoveries on debts owed by the bankrupt fast fashion retailer, a lawyer for the company’s unsecured creditors said on Tuesday.

At a virtual hearing before a Delaware-based US bankruptcy judge, attorney Justin Alberto, who represents a committee of creditors including US and China-based manufacturers and suppliers, added that his committee is continuing to investigate a January deal in which retailer JCPenney acquired Forever 21’s parent, known as SPARC Group.

In a court filing last week, the unsecured creditors’ committee said the deal essentially obligated Forever 21 and certain corporate affiliates to pay JCPenney’s existing debt.

“The outcome of these cases is dire” for unsecured creditors, the committee wrote in the April 10 court filing. “The viability of certain of [Forever 21’s] largest vendors and the livelihoods of their employees are on the line.”

Forever 21’s US operating company in March filed for bankruptcy for the second time in six years, with about $1.6 billion in debt. Its proposed plan to wind down operations and exit bankruptcy would repay unsecured creditors like suppliers and vendors 3 percent to 6 percent of their $433 million in claims, according to court filings.

Entities that operate Forever 21 stores outside the US are not bankrupt.

Forever 21 was hurt by weak mall traffic and mounting online competition in the fast-fashion sector. It claimed in court papers that it faced a competitive disadvantage from the “de minimis” exemption, which allows foreign competitors like Shein to import low-value packages from China without paying customs duties.

An executive order earlier this month by US President Donald Trump has put an end to the de minimis exemption on goods from China and Hong Kong, effective May 2.

Authentic Brands Group - a member of the SPARC Group and the owner of Forever 21’s intellectual property — has said it may re-license the IP, a move that could keep the Forever 21 brand alive in the US in some capacity.

By Nicholas P. Brown; Editor: Lisa Shumaker

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