The company that formerly operated Forever 21's US stores, F21 OpCo, has received court approval for a plan to partially repay its vendors and other creditors who were facing significant losses in the retailer's bankruptcy proceedings. This approved plan includes a crucial settlement with lenders and the former Forever 21 parent company, Sparc Group, designed to increase the recovery for unsecured creditors.

Operator of fashion brands including Aeropostale and previously Forever 21, Sparc Group, agreed to completely waive a substantial $323 million claim. This waiver is pivotal because that claim would have severely diluted any funds available to unsecured creditors, potentially leaving them with mere pennies on the dollar. Under the newly approved agreement, unsecured creditors will now receive 70 per cent of any net proceeds F21 OpCo obtains during its liquidation.

F21 OpCo filed for Chapter 11 bankruptcy protection in March of this year. This filing occurred just two months after Sparc Group announced its merger with JCPenney, forming a new combined entity.

A committee representing the unsecured creditors in the bankruptcy case stated that it had thoroughly investigated the Sparc transaction. In a court filing from June 11, the committee explained its decision to opt for the settlement approved this week. Their investigation concluded that they did not uncover any potential legal claims that would ‘materially improve recoveries for general unsecured creditors’ beyond what the settlement offered.

Earlier reports from Bloomberg News indicated, some vendors to F21 OpCo claimed that F21 OpCo had requested discounts on orders and accepted shipments shortly before filing for bankruptcy, allegedly without disclosing its impending reorganization plans. This current settlement aims to bring some resolution to these various claims and concerns within the bankruptcy framework.