WILMINGTON, DE – A Delaware judge has blocked owners and subsidiaries of bankrupt Fresh & Easy from selling stores in the chain, citing demonstrated risk of fraudulent transfers.
The temporary restraining order was granted by Judge Brendan L. Shannon after the company’s Official Committee of Unsecured Creditors filed a proposed bankruptcy court lawsuit to seek the recovery of the stores and its funds in regards to the reported earlier transfers without compensation from 2014.
The committee stated that 19 stores were transferred without payment to FEFOS through individual and corporate parties, such as YFE Holdings Inc. Fresh Foods LLC, and FEFOS LLC. The committee said that these transfers were made for the benefit of those involved during the insolvency of Fresh & Easy.
“FEFOS has already transferred some of the sale proceeds to YFE in the past," Judge Shannon said in his order, according to Law360. “FEFOS and YFE have refused to agree from making further transfers, pending the committee's investigation of potential claims.”
In addition to submitting the legal request, the committee also sought a reclassification of more than $100 million of debt claims and filed a 12-count bankruptcy court lawsuit.
Amongst those named in the suit was Ronald W. Burkle, the majority owner of YFE, which is the sole owner of FEFOS and Fresh & Easy. The suit claims that Burkle and YFE are leading company insiders to scavenge what remains of the company, according to Law360, and caused the company to transfer the 19 stores without charge while still charging loans to the debtors and collecting interest.
The suit has accused Burkle of “inequitably at every turn, stripping assets out of the Debtor, knowing that doing so will reduce creditor recoveries,” in addition to other fraudulent actions by YFE, as reported by Law360.
Fresh & Easy first filed for Chapter 11 in 2013, and sold around 150 of its locations to YFE, who then assumed approximately $130 million in debtor’s liabilities. The company then filed for bankruptcy a second time in Delaware after failing to turn itself around.
Previously, the committee won Judge Shannon’s approval to inspect Fresh & Easy’s audit materials as part of the investigation. Representatives of those named in the complaint have not yet issued a comment. Judge Shannon has scheduled a hearing for a preliminary injunction for 10 a.m. on June 13.
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