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.
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.