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Payless Settles Creditor Dispute, Admits No Wrongdoing

Payless settled a dispute with its creditors on Tuesday, after creditors complained that Payless’ private equity owners allegedly siphoned off $400 million before the company’s bankruptcy, according to a Reuters report.

News of the settlement comes weeks after the company announced store closures could reach up to 800 stores, and after the company filed for chapter 11 bankruptcy earlier this year.

Other private equity-owned companies and their creditors continue to monitor the case, worried it could bring on more claims against bankrupt companies over “so-called dividend recapitalizations,” involving companies borrowing money in order to pay buyout firms which own it a special payment.

According to Reuters, Payless’ creditors told the court that private equity firms Golden Gate Capital and Blum Capital, together holding 98.5% of the company and control its board, got more than $400 million in dividends in the last few years.

The settlement gives unsecured creditors like landlords and vendors will receive $25 million in cash during the bankruptcy reorganization, sources close to the issues told Reuters. They also said the deal will add an extra $7.3 million for another bout of creditors.

Payless did not admit to any wrongdoing as part of the settlement.

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