The trustee in the 7-year-old bankruptcy liquidation case of retailer Merry-Go-Round Enterprises Inc. is paying $85 million to creditors, including landlords and former executives, partially satisfying claims that some had given up hope of ever receiving.
The latest distribution in the case represents 30 percent of $260 million claimed by about 4,000 creditors, Deborah Hunt Devan, the court-appointed trustee, said yesterday.
Once a Maryland retail institution and Wall Street darling, the national chain of teen apparel shops struggled for two years to emerge from bankruptcy protection before going out of business in February 1996.
About $290 million has already been paid to priority creditors, including banks, taxing authorities, some landlords and some of the former 1,000 employees owed wages and severance.
But general creditors such as shopping center owners and developers, claims traders, vendors, insurance companies and executives owed retirement pay had a much smaller chance of getting reimbursed for even a portion of their claims, she said.
"What's unusual is that they're getting anything, because most of the time they don't get anything," Devan said yesterday.
Some of the claim money - between $9 million and $10 million - will go toward retirement benefits for former Merry-Go-Round executives who had worked at the chain for many years when it closed, Devan said. About $20 million in retirement benefits have been paid so far, she said.
Devan was appointed in 1996, after the chain voluntarily decided to liquidate under Chapter 7. She has been working to pay creditors from the former Joppa-based retailer's assets.
She sued accounting firm Ernst & Young for malpractice over its role as a turnaround adviser for the chain of 1,500 stores.
That case was settled in April 1999 for $185 million, representing the second-largest legal settlement in Maryland history, and it put accounting firms on notice that they can be held liable for the failure of companies they are hired to help.
Funds for the latest distribution come from that settlement as well as from the proceeds of other lawsuits and tax refunds from the Internal Revenue Service, said Devan, a principal with Neuberger, Quinn, Gielen, Rubin & Gibber. She is pursuing other lawsuits in hopes of recovering money to eventually pay creditors more than the 30 percent of their claims.
"This shows that sometimes the process does work," said Billy Leonard, an attorney with Strasburger & Price LLP in Dallas, who represents former landlords of more than 30 Merry-Go-Round stores. "It certainly is welcomed by my clients. The reaction was, 'Wow, I forgot about that.' It's almost like found money.
"It's fair to say no one anticipated there ever being a recovery quite like this. Although it took a while to get distributed, I think the end result was well worth the wait."
Many landlords never expected to see a penny once Merry-Go-Round converted its Chapter 11 bankruptcy to a Chapter 7 liquidation, said David Pollack, an attorney with Ballard Spahr Andrews & Ingersoll, LLP in Philadelphia. His shopping-center owner clients are getting checks ranging from $10,000 to $4 million.
"To get 30 cents [on the dollar] in a case this old where nobody ever expected anything - she was a miracle worker," Pollack said of Devan. "It's money they never expected to see."
But some creditors were likely disappointed in the disbursement, said Peter A. Chapman, president of Bankruptcy Creditor's Service Inc. in Trenton, N.J., which publishes a newsletter that tracks billion-dollar restructurings.
Fidelity Investments, for instance, paid 86 cents on the dollar for a stake in Merry-Go-Round debt, he said. A portfolio manager for Fidelity said she could not comment on the distribution.
Merry-Go-Round, co-founded by Leonard "Boogie" Weinglass, began in 1968 with a single Atlanta boutique and rose to fashion stardom through the early 1990s with about 1,500 stores.
As recently as 1991, the chain was successfully focusing on fashion trends that sold. But when the retailer banked heavily on the appeal of "hip-hop" clothing when the mood of adolescents was swinging toward the "grunge" look, the company was left with millions of dollars worth of merchandise that wouldn't sell.