The Wet Seal, LLC, et al. – Preference Defense Lawyer

Beginning on August 29, 2017, The Wet Seal, LLC filed approximately 68 adversary proceedings, seeking to avoid and recover alleged preferential and/or fraudulent transfers pursuant to Sections 547, 548, and 550 of the United States Bankruptcy Code.

Background, as alleged by Plaintiff:

“the Debtors were a national multi-channel specialty retailer selling fashion apparel and accessory items designed for female customers aged 18 to 24 years old. The Debtors were comprised of two primary business units; the retail store business and an e-commerce business. Through their retail store business, the Debtors operated approximately 142 retail locations in 37 states, principally in leased-based mall locations. Through their e-commerce business, the Debtors operated an e-commerce site at www.wetseal.com and had over 2 million followers on their Facebook page. The Debtors also had sold gift cards, which business had been primarily operated through Debtor The Wet Seal Gift Card, LLC.”

Procedural History:

On February 2, 2017 (the “Petition Date”) the Debtors each commenced a case by filing a voluntary petition for relief in this Court under chapter 11 of the Bankruptcy Code. No trustee has been appointed, and the Debtors continue to operate their business and manage their properties as debtors and debtors in possession pursuant to Bankruptcy Code sections 1107(a) and 1108.The Debtors in these chapter 11 cases include The Wet Seal, LLC, The Wet Seal Gift Card, LLC, and Mador Financing, LLC.

These adversary actions are before the Honorable Christopher S. Sontchi.

On September 22, 2017, The Wet Seal, LLC, Plaintiff in these adversary Proceedings, filed its Motion to Approve Orders Establishing Streamlined Procedures Governing Adversary Proceedings Brought by Plaintiff Pursuant to 11 U.S.C. 502, 547, 548 and 550 of the Bankruptcy Code. The Procedures Motion has an objection deadline of October 6, 2017 at 4:00 p.m. and a hearing date of November 7, 2017 at 10:00 a.m. Among other things, the Procedures Motion seeks to extend each Defendant’s time to file responses to their respective complaints.

Common Defenses in Preference Actions

The United States Bankruptcy Code provides many affirmative defenses to preference actions, contained within Section 547(c). For example, the most common defenses that may be available to a Defendant under Section 547(c) may include:

• the transfer was a contemporaneous exchange for new value given to the debtor (i.e., the debtor received something of value in exchange for the transfer); 11 U.S.C. §547(c)(1);
• after such transfer, Defendant gave new value to or for the benefit of the debtor (i.e., the Defendant extended additional credit to the Debtor after receiving the transfer) 11 U.S.C. §547(c)(4); or
• the transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the recipient (i.e., Defendant made the transfer under ordinary business terms). 11 U.S.C. §547(c)(2).

For more information, see our page on Preference Defense Litigation: http://www.tobialaw.com/practice-areas/delaware-preference-defense-lawyer/

If you conducted business with The Wet Seal, LLC or any related entities and especially if you have received a demand letter or a complaint, contact us here, email us at info@tobialaw.com or call the firm’s Wilmington offices directly at (302) 655-5303 to schedule an initial consultation. We can discuss the situation and share with you our initial observations at no charge.