Not long ago, at malls and strip centers across Illinois, shoppers could count on finding Dress Barns, Lane Bryants, Ann Taylors, Justices and other apparel stores run by Ascena Retail Group.
Five years ago, the retailer operated nearly 5,000 brick-and-mortar locations catering to women, teens and tweens. As of 2020, that number had been halved and the bankrupt chain has agreed to sell off its surviving stores.
Fashion apparel is a tough business for any merchant, given powerful e-commerce competition and the effects of the pandemic on all retail sectors. In the case of Ascena, some of its wounds were self-inflicted, and the efforts of its leaders to avoid a courtroom reckoning have turned its bankruptcy case into a landmark. We hope the U.S. Supreme Court will take notice.
Ascena's troubles began in 2015, when it paid more than $2 billion for Ann Inc., parent of Ann Taylor, Loft and other retail clothing chains. Over the next two years, executives at the then-publicly held company told investors on at least several occasions that business was going well. In May of 2017, Ascena warned of trouble ahead and its stock plunged. Weeks later, it took a $1.3 billion restructuring charge, and the operation only went downhill from there.
In its bankruptcy reorganization, Ascena received sweeping legal protections for the company's former senior officers and other insiders. These so-called third-party releases protect individuals who never filed for bankruptcy themselves from lawsuits arising from their conduct, ending potential claims that normally would be resolved by judges or juries in other courts. These legal releases have become common in corporate bankruptcy cases, and, to put it bluntly, they stink.
Readers may recall that the Sackler family of Purdue Pharma, the notorious pusher of opioids, received these same releases. Though none of the Sacklers had filed for personal bankruptcy, the judge in their company's case approved a settlement allowing family members to walk off with billions they had made selling addictive drugs and with no worries about being sued in other courts.
The outcome was so outrageous that it prompted a backlash, and a New York district judge overturned the Purdue settlement. Her ruling highlighted how these releases have become common in bankruptcy reorganizations. Debtors file their cases in venues known for doling them out routinely or threaten to drag out proceedings at the expense of creditors unless they get the free legal passes they want.
Neither the Sacklers nor any other stewards of busted companies should have so much leverage to distort justice. Finally, it appears that a reconsideration is at hand, as district judges scrutinize the use of these releases in other bankruptcies besides Purdue's, which was especially antagonizing because so many people died from its drugs.
