On August 29, 2017, The Wet Seal, LLC filed preference actions against 67 defendants. The lead Wet Seal bankruptcy case is Case No. 17-10229 in the Bankruptcy Court for the District of Delaware. Wet Seal is represented by A.M. Saccullo Legal, LLC and ASK, LLC.
According to the complaints, the Debtors were a national multichannel specialty retailer selling fashion apparel and accessory items designed for female customers aged 18 to 24 years old. The Debtors were comprised of two primary business units; the retail store business and an e-commerce business. Through their retail store business, the Debtors operated approximately 142 retail locations in 37 states, principally in leased-based mall locations. Through their e-commerce business, the Debtors operated an e-commerce site at and had over 2 million followers on their Facebook page. As retailers, they had a significant supply chain, comprised of a significant number of suppliers. The defendants in these preference actions were entities who were alleged to have received payments within the 90-day period immediately preceding Wet Seal’s February 2, 2017 bankruptcy filing.
Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy. The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor’s management didn’t like. Recognizing that these payments aren’t always made for inappropriate reasons, the Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”
John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP. John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at email@example.com.