Investors Castle Apparel Ltd. and TAL Apparel Ltd. sued the Del Vecchios, claiming that the Brooks Brothers bankruptcy ended up being a maneuver that allowed the retailer to stiff them on their minority investment at the company.
The suit, filed in New York federal court on Monday, is directed at defendants including Del Vecchio and his son Matteo Del Vecchio, former chief administrative officer for Brooks Brothers. It seeks more than $100 million in payment, a sum that the investors claim reflects their actual stake in the company.
Castle Apparel and TAL Apparel, which refer to themselves collectively as TAL in the New York federal court complaint, claimed that if Brooks Brothers had seriously sought acquisition bids in 2019, it would have netted shareholders including TAL “hundreds of millions of dollars.” But the retailer allegedly held out in order to avoid paying out TAL’s equity investment, the suit claimed.
The retailer’s $325 million bankruptcy sale in September to SPARC Group, the joint venture of licensing company Authentic Brands Group and mall landlord Simon Property Group, represents a “fraction” of the value of the 2019 bids the Del Vecchios allegedly eschewed, the suit claimed.
“To avoid millions of dollars of personal liability to TAL, the Del Vecchios refused to consider a sale of Brooks Brothers unless TAL would agree to reduce or waive its make-whole right,” the investors claimed in the suit.
“When TAL refused to give up its contractual rights, the Del Vecchios threatened to ‘roll the dice’ by throwing Brooks Brothers into bankruptcy and selling the company as part of those proceedings, in the erroneous belief that such a course would allow them to circumvent their obligations to TAL,” they claimed. “The Del Vecchios made good on their threat, causing the company to file for bankruptcy and continuing their pre-petition, pre-pandemic sale efforts.”
Claudio Del Vecchio did not immediately respond to a request for comment Tuesday.
Brooks Brothers filed for Chapter 11 in Delaware bankruptcy court in July, saying although the company had been considering a possible sale or merger since 2019, those prospects didn’t materialize at the time, and that the COVID-19 pandemic eventually prompted the company to “refocus their efforts on a restructuring of their businesses through a Chapter 11 filing,” according to bankruptcy court filings.
Castle Apparel had made an appearance in the Brooks Brothers bankruptcy case, and was listed among the retailer’s equity security holders as owning all the class B stock in the company, according to Brooks Brothers’ Chapter 11 filing.
The TAL investors claimed also that at the time they were investing in the company in 2016, Claudio Del Vecchio had made reassurances about insulating them from the risks of a potential bankruptcy, according to the suit in New York federal court.
“Plaintiffs knew that Claudio Del Vecchio and his family had substantial resources and therefore had the means to keep Brooks Brothers out of bankruptcy,” TAL investors said in the suit.
“Plaintiffs’ representatives asked Claudio Del Vecchio if he would use his own funds to keep Brooks Brothers out of bankruptcy,” they said. “Claudio Del Vecchio assured plaintiffs that he would do so. Mr. Del Vecchio further represented that the Del Vecchios would make plaintiffs whole in the event of any sale of the company, including in a downside scenario, thereby assuring plaintiffs that their investment was protected.”