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Barneys New York, Inc. – Revised Disclosure Statement Highlights Risks Facing Holders of Administrative Claims

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December 9, 2019 – The Debtors filed their first Amended Disclosure Statement with an attached redline [Docket No. 579] showing changes to the version of the document filed on November 15, 2019. The amendments are almost entirely comprised of almost new language highlighting the treatment of administrative claims which currently face a recovery in the range of 11.4-40.0% depending on the total of allowed administrative claims. The amended disclosure also emphasizes that failure to object to the Plan shall be deemed consent (i) to treatment otherwise outside of that normally required by section 1129(a)(9) of the Bankruptcy Code and to (ii) third-party releases. Objections are currently due by January 17, 2019.

The added language in the Disclosure Statement does not change the treatment of administrative claims under the Plan (so why have the Debtors waited until now to "make sure that affected creditors are fully informed of their rights"?), but certainly highlights the risk of diminished recoveries for claim holders and the affirmative steps (ie objecting to the Plan) that must be taken in order to avoid implied consent.

The Disclosure Statement now adds: "It is likely that there will not be enough Distributable Cash to satisfy all remaining Allowed Administrative Claims in full in Cash….Without limiting the variability of the foregoing and for illustrative purposes only, the Debtors estimate that Distributable Cash could be equal to $[2.0] – $[6.0] million, exclusive of $2.0 million already set aside to fund employee separation costs pursuant to the Sale Order. Assuming amid-point of $[4.0] million for Distributable Cash, potential, illustrative recoveries for Allowed Administrative Claims are set forth below. THE ILLUSTRATIVE RECOVERIES SET FORTH IN THE TABLE BELOW ARE ESTIMATES ONLY AND THEREFORE ARE SUBJECT TO CHANGE. ACTUAL RECOVERIES COULD MATERIALLY AND/OR SUBSTANTIALLY DIFFER FROM THE BELOW."

Illustrative Administrative Claims Recoveries –Assuming $[4.0] Million of Distributable Cash

Total Allowed Claims

$10.0mm

$15.0mm

$20.0mm

$25.0mm

$30.0mm

$35.0mm

Recovery Percentage

[40]%

[26.7]%

[20]%

[16]%

[13.3]%

[11.4]%

The Disclosure Statement continues with an aggressive defense of the chosen implied consent mechanism which will undoubtedly have to the pass muster in Court: "… each Holder of an Allowed Administrative Claim shall receive, in full and final satisfaction, compromise, settlement, and release of and in exchange for its Claim, its Pro Rata share of the Administrative and Priority Tax Claims Recovery. The failure to object to Confirmation by a Holder of an Allowed Administrative Claim and Allowed Priority Tax Claim shall be deemed to be such Holder’s consent to receive treatment for such Claim that is different from that set forth in section 1129(a)(9) of the Bankruptcy Code. If such Holder of an Administrative Claim and Priority Tax Claim does not object to the Plan, such Holder shall be deemed a Released Party for all purposes hereunder. The treatment of Administrative Claims under the Plan is consistent with applicable law and similar approaches have been adopted by other debtors facing administrative insolvency and have been approved by bankruptcy courts under such circumstances. …The Debtors seek to be completely transparent about the treatment of Administrative Claims under the Plan and have made clear that if a party does not timely object to its treatment under the Plan (such objections are due by January [17], 2020 consistent with the Debtors’ solicitation procedures), such party will be deemed to have consented to the treatment contemplated by the Plan. The notion of such implied consent by the failure to object to the Plan complies with the Bankruptcy Code. The plain language of Section 1129(a)(9) simply requires “agreement” to different treatment of a Priority Claim. There is nothing in Section 1129(a)(9) that requires affirmative agreement. Courts should, therefore, “properly assume, absent sufficient indication to the contrary, that Congress intends the words in its enactments to carry ‘their ordinary, contemporary, common meaning.’ The ordinary and common meaning of “agree” is “consent or accede'.”

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