Musicland unsecured creditors request examination of management, board, lenders, trade lien creditors

By Caroline Salls

Pittsburgh, Feb. 15 - Musicland Holdings Corp.'s official committee of unsecured creditors requested an examination of current and former members of the company's senior management and boards of directors; officers and directors of Sun Music LLC; the trade lien creditors; prior owner Best Buy Co., Inc. and lender Harris Bank NA.

According to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York, the committee wants the examination to evaluate the merits of any potential committee claims for breaches of fiduciary duty, self-dealing, unreasonable fees, misleading public statements, preferential transfers, improvement in position, fraudulent transfers/conveyances and/or collusive behavior and to investigate the pre-bankruptcy relationship between Musicland, the Sun entities, Best Buy and Harris Bank.

Sun Music is the controlling stockholder of Musicland.

The issues related to the senior officers and board include pre-bankruptcy activities and decisions, particularly in connection with the company's decision to enter into a security agreement with the trade lien creditors and the decision to prepay the loan from Harris Bank.

Issues surrounding include prepayment of the Harris loan and payments that Sun received from the company, including any promises that Sun may have made to support the company.

The committee said it also wants the examination to investigate the details concerning Sun Music's acquisition of Musicland.

Issues surrounding the trade lien creditors include preferential transfers, individual credit and return policies, fraudulent conveyances and breach claims.

Issues surrounding Best Buy include the pre-bankruptcy transactions and relationship between Best Buy and Musicland, including whether any intercompany transactions were entered into between Best Buy and Musicland, which were unfair or detrimental to the company when it was insolvent or made it insolvent.

Musicland, a Minnetonka, Minn., specialty retailer of pre-recorded entertainment software products, filed for bankruptcy on Jan. 12. Its Chapter 11 case number is 06-10064.

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