Editor's note: This story was updated after it was initially published to include a statement from Andretti Autosport.
A group representing the unsecured creditors of HHGregg has filed suit against Andretti Autosport in an attempt to claw back nearly $1.5 million in sponsorship money the now-defunct retailer paid the racing team in the months leading up to its bankruptcy.
The suit was filed Friday by the Official Committee of Unsecured Creditors of Gregg Appliances Inc., which was formed in March to recover what are known as "preferential payments" to creditors. Preferential payments are considered unfair by bankruptcy courts because they favor certain creditors to the detriment of other creditors who did not get paid.
Indianapolis-based HHGregg, which operated more than 220 electronics and appliance stores in 19 states, filed for Chapter 11 bankruptcy on March 6 and closed all of its stores shortly afterward.
Indianapolis-based Andretti Autosport entered into a pair of sponsorship agreements with HHGregg in early 2016, the lawsuit says. The second agreement called for HHGregg to sponsor driver Marco Andretti’s car in the 2017 and 2018 IndyCar Series at a cost of $2.75 million annually.
HHGregg made four money transfers related to the agreement from Dec. 1, 2016, to Feb. 1, 2017, totaling more than $1.5 million, the suit says. Andretti Autosport received more than $1.46 million of that amount after local sports marketing company Just Marketing International deducted about $90,000 in management fees.
The unsecured creditors group seeks to reclaim the $1.46 million, plus interest and attorney fees, because it says those “preferential payments” were made when HHGregg was “experiencing extreme financial difficulty,” to the point of being insolvent.
Bankruptcy code often allows debtors to claw back preferential payments that were made 90 days prior to the bankruptcy filing so the money can be distributed to general creditors. It also extends that period to a year if the recipient is an “insider” to the bankrupt party.
HHGregg made all but one of the payments to Andretti Autosport within the 90-day period, except for $705,500 that was paid Dec. 1. The racing team received $687,500 of that amount after JMI took its cut.
In the suit, the creditors group claims that first payment should also be considered a preferential payment because Andretti Autosport CEO Michael Andretti was named a HHGregg board member in September 2016, giving him “insider” status.
In an emailed statement to IBJ, Andretti Autosport said it disagreed with the creditors group's interpretation of preferential payments.
"The Committee’s lawsuit is an attempt to 'claw back' or seek the return of sponsorship fees properly paid to [Andretti Autosport] pursuant to valid written sponsorship agreements between it and HHGregg," the statement said. "Despite the Committee’s claims, the sponsorship payments were not 'preferential' because they were made in the ordinary course of business and according to ordinary business terms and, therefore, are not subject to claw back.
"[Andretti Autosport] provided rights, benefits, and services pursuant to the sponsorship agreements, which were entered into prior to Michael Andretti joining the HHGregg Board of Directors. As a result, he had no influence, control, or management over the business affairs of HHGregg or the payments made to [Andretti Autosport] under the sponsorship agreements. Accordingly, [Andretti Autosport] intends to vigorously defend against the claims made in this matter."
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