By: Donald L Swanson
The parent company of menswear chains Jos A. Bank and Men’s Wearhouse filed Chapter 11 bankruptcy on August 2, 2020.
And it achieved a confirmed plan on November 13, 2020. The case is In re Tailored Brands, Inc., Case No. 20-33900 in the Southern Texas Bankruptcy Court.
Like other retailers, the pandemic hit Tailored Brands hard: considered non-essential, they had to close stores and only do online sales. That led to furloughing staff and obligations going unpaid.
The Consensual Process, Including Mediation
Here’s what Debtor’s brief in support of confirmation says about the process toward a consensual plan of reorganization, that includes mediation (Doc. 1203, par. 1-2):
- Before filing bankruptcy, Debtor entered into a restructuring agreement with more than 75% of its senior lenders, that would reduce its debt by at least $630 million in bankruptcy;
- Then, Debtors began building consensus with the remaining stakeholders, including the Creditors Committee;
- Through mediation, Debtor achieved a final consensus with the Creditors Committee;
- As a result, Debtor stands poised for confirmation of a plan with support from all key stakeholders; and
- Through the Plan, Debtor will emerge as a leaner, well-capitalized company, having consummated a transformative restructuring in less than four months—no small or easy task for a retail company.
Quick Bankruptcy Action
Tailored Brands achieved a consensual plan of reorganization at warp speed, with the assistance of mediation. Here’s a chronology:
08/02/2020 Debtor files Chapter 11
08/17/2020 Debtor files a Plan of Reorganization (Doc. 347)
11/05/2020 Mediation occurs under stipulated Order (Doc. 1034)
11/13/2020 Debtor files an Amended Plan of Reorganization (Doc. 1210)
11/13/2020 Court enters Order confirming the Amended Plan (Doc. 1221)
That’s a quick accomplishment!
Stipulated Order for Mediation
Here is an abbreviated version of provisions in the stipulated Order for mediation (Doc. 1034):
1. The Court authorizes and appoints the Honorable David R. Jones . . . to serve as mediator . . .
2. . . . Judge Jones will be serving in his capacity as a United States Bankruptcy Judge, with all of the privileges and immunities attached to such service.
3. The Mediator is authorized to mediate any issues and disputes concerning the Enterprise Value of the Debtors.
4. . . . Debtors shall deliver to the Mediator the following documents: (a) the Plan; (b) the Disclosure Statement and all exhibits thereto; (c) [various expert reports] . . . , with the representatives for the other Parties included in such correspondence.
5. Each of the Parties may share a confidential summary document, not to exceed three pages, . . . on the Enterprise Valuation of the Debtor . . . Each Summary Report shall only be provided to the Mediator and shall not be shared with the other Parties.
6. No written materials or documents, other than the Permitted Materials, shall be prepared by the Parties unless otherwise requested by the Mediator.
7. The results of the Mediation are non-binding upon the Parties.
8. There shall be an absolute mediation privilege, and all communications made by a Party . . . in connection with the Mediation, including discussions or communications with or in the presence of the Mediator, shall be confidential, protected from disclosure . . . all Parties participating in the Mediation shall comply with the terms of this Order and maintain the Absolute Mediation Privilege. . . .
9. All settlement proposals . . . shall (a) remain confidential unless the Party making such Settlement Proposal agrees to the disclosure . . . , (b) be subject to protection under Rule 408 of the Federal Rules of Evidence, and (c) shall not constitute material nonpublic information.
10. The Mediator shall be authorized to report to the Court on the good faith of any or all of the Parties.
. . .
13. This Court retains exclusive jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order.
Some Observations & Questions
Here are some observations about the mediation, with some questions that follow.
First, it appears that the parties narrowed the disputes for resolution during mediation to a single issue: what is the enterprise value of the business? This pre-mediation narrowing of issues is an obvious advantage for achieving resolution.
Second, the mediation Stipulation/Order makes no mention of a local mediation rule. It appears that the Southern Texas Bankruptcy Court has no local mediation rule of its own. Instead, the Bankruptcy Court’s local rules adopt the District Court’s local rules by reference. Here’s the operative language in the Bankruptcy Court’s Local Rule 1001-1:
- “In addition to these rules, the Local Rules of the District Court . . . govern practice in the bankruptcy court.”
The District Court’s Local Rule 16.4 contains extensive ADR provisions, including details on confidentiality and procedures to be followed. Presumably, such ADR provisions apply in the mediation that occurred, whether mentioned or not.
Regarding mediation confidentiality, I’ve always wondered about the distinction between, (i) a stipulated order containing confidentiality provisions, and (ii) local court rules on confidentiality. Here are specific questions:
- What happens if another interested party, who did not sign the stipulated order, wants discovery of something that occurred during the mediation?
- Is the non-signing party bound by the stipulated order? And does it make a difference when the stipulated order is approved without notice or opportunity to object?
- Wouldn’t a local rule on mediation confidentiality provide greater levels of protection, as against all interested parties, than a stipulated order?
- Why would the stipulated Order quoted above reference Rule 408, except for concerns over potential discovery demands of interested parties who did not sign it? Wouldn’t a local confidentiality rule provide greater protection?
In re Tailored Brands is another example of how mediation can be helpful in bankruptcy plan confirmation processes—even a process that’s going at warp speed.
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