Payback Time for Chorus Line
Almost two years after it filed for Chapter 11 bankruptcy, Chorus Line Corp. is preparing to pay unsecured creditors 10 percent to 20 percent of their original claims or $2 million to $3 million.
The company’s reorganization plan was confirmed on Sept. 4 in U.S. Bankruptcy Court in Los Angeles. As part of the action, the court tentatively appointed Timothy Yoo of Los Angeles law firm Robinson, Diamant & Wolkowitz APC to oversee the liquidation and the distribution of funds.
Attorney Steven T. Gubner, representing the creditors’ committee, estimated it will take from six months to one year to liquidate all outstanding claims and settle appeals.
Chorus Line, a maker of moderately priced sportswear once based in Vernon, Calif., was forced into Chapter 7 bankruptcy in November 2000 when several unsecured creditors filed a petition against the company in an attempt to recover about $140,000 in unpaid debts from its Carole Little division. The company—controlled by Levine Leichtman Capital Partners Inc., a private investment firm in Beverly Hills, Calif.—later converted the filing to Chapter 11 status, which allowed it to form a reorganization plan.
A high-flying business in the early 1990s, Chorus Line faced liquidity problems following the purchase of the Carole Little brand in 2000. Late last year, it wound up selling most of the brands in its stable to Van Nuys, Calif.–based Cherokee Inc. for about $2 million.
The bankruptcy meant Chorus Line owed 275 secured and unsecured creditors close to $46 million. The company last year settled a claim with its primary secured creditor, GMAC Commercial Credit LLC, but has yet to pay unsecured creditors. The unsecured creditors will get $1.75 million in proceeds from the Cherokee sale as a result of a claim filed against GMAC Commercial Credit to free up the sale.
Ezra, Brutzkus & Gubner, the Encino, Calif.–based law firm representing the creditors’ committee, has also filed a number of complaints against preferred creditors who collected money from Chorus Line or Carole Little 90 days before the initial bankruptcy filing. The bankruptcy statute allows the court to collect payments made 90 days before the bankruptcy filing. That should bring the total to at least $2 million.
Some of those claims are still being litigated. The total paid will probably amount to about 10 cents to 20 cents on the dollar of the original debts, said attorney Mark Brutzkus.
“That’s pretty good for an apparel bankruptcy, considering that we started with nothing,” he said.
Some creditors, however, weren’t thrilled about the amount.
“It’s way too low,” noted Frank Valenci, owner of Los Angeles–based Vogue Trimmings Inc., which Chorus Line owes close to $40,000 for novelty trimmings supplied to Carole Little. Valenci already received $15,000 from Carole Little in 2000, but he may have to return the money because it was paid within the three months before the company filed for bankruptcy.
Major unsecured creditors include Dillard’s Inc., owed $4.1 million; apparel manufacturer LAglo Inc., owed $2 million; the U.S. Customs Bureau, owed $2 million; and trimmings supplier Tag-It Pacific Inc., owed $424,000. Burlington Industries Inc., Avery Dennison Corp., Gerber Technology Inc. and De Marco California Fabrics Inc. make up a list of other unsecured creditors that are each owed amounts under $100,000.
Former employees will also be paid, but will be limited to a $4,650 cap per person under bankruptcy law.
While Chorus Line settles its bankruptcy claims, it is still mired in lawsuits, including one filed by designer Carole Little and Carole Little company co-founder Leonard Rabinowitz, who is seeking half of the recovered funds. Creditors are appealing the claim.
Little still lives in Southern California. She has formed Studio CL with Rabinowitz, her ex-husband, and is planning to return to the fashion scene.
Carole Little, a maker of high-quality women’s sportswear and career apparel, posted annual sales of about $375 million at its peak in the early 1990s. Sales gradually declined to about $120 million.
In the mid-1990s, the clothing company was rocked by the murders of two company officials and one of its sewing contractors in Glendale, Calif.
