L&L Wings creditor seeks authority to prosecute actions against lenders

By Sarah Lizee

Olympia, Wash., Nov. 18 – L&L Wings, Inc. unsecured creditor Beach Mart Inc. is seeking authority to prosecute certain actions on behalf of the debtors against lenders TD Bank, NA, Bank of America, NA, Truist Bank and United Community Bank, Inc., according to a motion filed Thursday with the U.S. Bankruptcy Court for the Southern District of New York.

The motion relates to 12 loan guarantees that the debtor executed to secure about $20 million of loans that the lenders issued to some non-debtors between June 2016 and January 2020.

“The loans were constructively fraudulent when conveyed,” Beach Mart said in its motion.

L&L conveyed the loan guarantees after it had already been sued by Beach Mart, the creditor said. On Sept. 9, 2011, Beach Mart started an action in the U.S. District Court for the Eastern District of North Carolina against the debtor seeking various causes of action for damages or other relief related to the tradename “Wings.”

After a jury verdict in Beach Mart’s favor, on March 29, 2021, the district court entered a judgement against the debtor for the total amount of $15.75 million.

Following the judgment, on April 24, 2021, L&L filed bankruptcy.

The bankruptcy court then entered a stipulation and order modifying the automatic stay in the Chapter 11 case to allow Beach Mart and the debtor to proceed with certain post-judgment motions in the district court. On Oct. 8, the district court resolved the post-trial motions, rendering the judgment final.

On Oct. 14, L&L filed a plan of reorganization.

Beach Mart said it wants authority to file an adversary complaint against the lenders in order to avoid the 11 loan guaranties that L&L executed to secure the loans.

“The debtor received no consideration in exchange for the loan guaranties conveyed to the guaranteed lenders,” Beach Mart said.

Under the plan, L&L proposes that the loan guaranties will remain in full force and effect, and L&L proposes to reaffirm its obligations under all existing guaranties executed in favor of the lenders.

“Through the proposed treatment in the plan, the debtor has made abundantly clear that it will not prosecute the actions and thereby, has expressly or implicitly refused to prosecute the actions, binding the reorganized debtor to secure approximately $20 million in loans that the guaranteed lenders issued to non-debtors,” Beach Mart said.

A hearing is scheduled for Dec. 2.

The New York-based beachwear and beach sundry items retailer filed bankruptcy on April 24, 2021 under Chapter 11 case number 21-10795.

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