Bankruptcy Judge Ruled In Support Of $375M Creditor Lawsuit Against Morgan Stanley

Morgan Stanley MS creditors can move forward with a lawsuit over dividends paid before the grocery chain Tops Friendly Markets filed for chapter 11.
The creditors filed the claims in 2020 against Morgan Stanley Investment Management and other former owners of Tops, alleging the private equity owners paid themselves $375 million in dividends while leaving Tops insolvent, unable to cover its debts and pension obligations, the Wall Street Journal reported.
The lawsuit alleged that the private equity owners made four separate dividend payments to themselves worth hundreds of millions of dollars while being aware that the company’s pension plans were significantly underfunded.
Bankruptcy Judge Robert Drain said the trustee made a plausible argument to support the case despite the private equity owners’ objections.
He highlighted how the bankruptcy code allows private equity owners to “loot privately-held companies to the detriment of their non-insider creditors with effective impunity.”
Morgan Stanley has argued that if the dividends had rendered Tops insolvent, it would not have operated for so many years after paying the dividends between 2009 and 2013.
“Tops and Morgan Stanley were well aware of the dire condition of the United Food and Commercial Workers pension plan and knew it would become insolvent,” the judge ruled.
Price Action: MS shares traded lower by 3.54% at $76.50 premarket on the last check Friday.