Mervyn's creditors file lawsuit to avoid, recharacterize preferential transfers

By Caroline Salls

Pittsburgh, April 7 - Mervyn's Holdings, LLC's official committee of unsecured creditors filed a lawsuit that asks the U.S. Bankruptcy Court for the District of Delaware to recharacterize $30 million in claims filed by SCSF Mervyn's (Offshore), Inc. and SCSF Mervyn's (US), LLC as equity interests, according to a Tuesday court filing.

According to the complaint, Mervyn's and the SCSF entities entered into various agreements in November 2007 under which the SCSF entities transferred about $30 million to Mervyn's and later received liens and security interests on some of Mervyn's assets.

Mervyn's said the SCSF entities attempted to perfect the liens and security interests, but they originally filed related unsecured creditors committee financing statements in the wrong court.

As a result, Mervyn's is claiming that the liens were not perfected and are avoidable as preferential transfers.

The company said the transfer in question is "at best, an unsecured obligation."

In addition, Mervyn's said the $30 million transferred by the SCSF entities was not debt, but rather a capital contribution from insiders holding significant membership interests in Mervyn's Holdings at a time when it was insolvent.

Mervyn's, a San Francisco-based department store, filed for bankruptcy on July 29, 2008. Its Chapter 11 case number is 08-11586.

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