ShopKo’s unsecured creditors are calling on a bankruptcy judge to convert the retailer’s case to chapter 7, in light of mounting legal fees, WSJ Pro Bankruptcy reported. The general merchandise and pharmacy chain may have a deficit of $42 million in payments to lawyers, advisers and creditors, who are owed full payment at the end of the case, lawyers for the unsecured creditors committee said in court papers. In early April, ShopKo’s largest creditor, McKesson Corp., asked the bankruptcy court to suspend or reduce mounting professional fees in the case. The pharmaceutical distributor argued that without such intervention, ShopKo would become “administratively insolvent,” meaning the estate would be unable to pay so-called administrative expenses. Unlike other creditor claims, the Bankruptcy Code requires administrative expenses to be paid in full. McKesson, which claims it’s owed millions of dollars for drugs delivered to ShopKo before the bankruptcy, contended that the company’s $480 million debtor-in-possession loan doesn’t give clear seniority to advisers’ fees in the case over other so-called administrative claims, such as those of landlords who are owed rent or suppliers who are owed money for goods they supplied. Specifically, McKesson’s lawyers argued that while ShopKo’s DIP loan provides for a “carve-out” for professional fees, those fees aren’t to be paid before the DIP lender, Wells Fargo & Co.
