Lampert sees court setback in Sears case

Billionaire businessman and investor Eddie Lampert suffered a setback in bankruptcy court this week when a judge ruled that some of his claims against the bankrupt estate of Sears Holdings Corp. wouldn’t get priority above other claims.

Monday’s ruling probably means Lampert’s ESL Investments Inc. will get a lot less than the $718 million he’s demanding from “Old Sears,” the legal shell that was left over after the chain’s 2018 bankruptcy to pay off remaining claims.

“It was a big win for the debtor and it’s a big loss for ESL,” said Eric Snyder, chairman of the bankruptcy practice at Wilk Auslander LLP, which represents a Sears landlord.

It’s just one of many issues over which Lampert and Old Sears have locked horns since he bought the business out of bankruptcy. It also comes as the money remaining in the estate to pay claims has dwindled to an estimated $5 million, putting it on the edge of administrative insolvency.

The dispute centers on socalled administrative claims, which are given priority by courts because they are debts needed to reorganize in bankruptcy, like legal fees and employee wages. At the start of a major case like Sears, the company sets aside what it thinks will be enough cash to cover those claims.

If that estimate is wrong, advisers, lawyers and other parties who helped untangle the company’s affairs won’t get fully paid for their work. Had Lampert won, he would have been competing with them for Sears’ dwindling cash pool.

The Sears estate won its motion to block an attempt to classify the debt held by second-lien lenders as administrative claims, which get higher priority in the pecking order of payments, according to a court filing. That means the second liens — the kind of debt held by ESL and Cyrus Capital Partners — will likely get paid out at a discount along with other lower-priority claims.