Monday, January 22, 2001
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Posted on: Monday, January 22, 2001

Liberty House lawyers face-off

By Andrew Gomes
Advertiser Staff Writer

Dozens of lawyers in Liberty House’s bankruptcy case are set to square off this morning in what could be the final chapter in the saga of the kama
aina retailer’s nearly 3-year-old struggle.

The hearing scheduled to begin today has one ultimate goal: confirmation of a plan of reorganization — essentially a blueprint for how to restructure operations and assets to pay back creditors and keep the retailer solvent.

The hearing could last as long as five days and will review the plan proposed by a group of lenders, Liberty House management and a seven-member committee of unsecured creditors that would issue the lenders $130 million in new Liberty House stock, and satisfy $40 million in claims primarily by paying creditors 40 percent in cash and 50 percent in stock.

Liberty House’s Chicago-based owner, JMB Realty Corp., is fighting the plan, saying it undervalues the retailer and improperly leaves JMB without an equity stake.

Lawyers for both sides will present final arguments in the case, with deposition testimony from experts as well as officials at Liberty House and related companies.

Among the key issues that remain are an outstanding Internal Revenue Service claim, the amount of the lender’s claim, and valuation of Liberty House.

Bankruptcy Judge Lloyd King, who has presided over the case since it began in 1998, will weigh the arguments and also consider whether the plan is feasible, fair and in the best interests of creditors.

How King might rule is unclear, but he has several options including confirming the plan over opponents’ objections, rejecting it, or taking it under advisement to rule at a later time.

An out-of-court settlement remains a possibility, and still could be reached at any time during the trial and up until the time of a ruling by King. Last week, lawyers involved in the case either declined comment or could not be reached for comment.

Liberty House filed for bankruptcy protection in March 1998.

Since then, opposing boards of directors — one representing JMB and one formed by the lenders — have disagreed on how to bring the retailer out of bankruptcy. Meanwhile, Liberty House has retooled operations and has consistently improved its performance, earning a profit of more than $8 million in each of the past two years.

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