Wolfson Bolton Kochis PLLC, on behalf of its client, The Heritage Collegiate Apparel, Inc. Unsecured Creditors’ Committee, has objected to confirmation of the proposed bankruptcy plan of Heritage Collegiate Apparel, Inc. f/k/a M-Den, Inc. d/b/a The M Den. You can read the Objection here.
A summary of the Objection from its Introduction follows:
The Plan cannot be confirmed for numerous reasons, most notably for the proposed extensive post-confirmation role it provides for the Debtor (as a duplicate fiduciary – in addition to the Liquidation Trustee) and its failure to sufficiently disclose the continued involvement of Scott Hirth, his affiliations, and his numerous conflicts of interest. Debtor’s responsibilities under the Plan would include distribution of in excess of $9m of remaining Sale Proceeds, as well as full authority with respect to all Claims and Interests other than those held by non-priority Unsecured Creditors.
Not only is Hirth wildly conflicted for the proposed role, but his pre- and post-petition management failures show he is unfit to administer the Plan and may be subject to claims by the Liquidation Trust. The Plan would allow Hirth to continue to run point on a secured loan and Merchant Cash Advance “mess” he likely intentionally created. This includes Hirth causing Debtor to receive over $42,000,000 of inflows from at least 97 different MCA lenders (though Hirth initially represented there were only two such loans), and outflows of $75,000,000. Worse yet, Hirth cannot be a disinterested fiduciary for his proposed role when he personally guaranteed most of Debtor’s secured debt and the majority, if not all, of the MCA debt.
Debtor’s accounting “system,” if it can be called one, is incomplete and confusing. Accounting controls appear virtually non-existent. The Committee’s examination of Debtor’s bank statements showed approximately 1,700 “Not Sufficient Funds” transactions totaling around $33,000,000 by Debtor on Hirth’s watch.
Hirth ran the Debtor with, at times, breathtaking incompetence. He gave alleged creditors – whose names he did not always know – Debtor’s corporate credit card to charge over $100k of luxury goods which were not properly accounted for by the Debtor.
The record makes clear that the Debtor, through Hirth, is not qualified to control estate affairs in any way post-confirmation, especially with respect to the MCA debacle he created and initially hid. There would be no benefit to the estate to keep an insider in charge of a significant liquidation and claim process, particularly this insider who plunged the Debtor into financial chaos. There should be only one fiduciary going forward. Neither creditors nor public policy would be served by permitting continued Debtor involvement with respect to any matters. Debtor’s creditors have long deserved better.
