Judge tosses plus-sized retailer's bankruptcy, liquidation likely

A Chapter 11 bankruptcy filing must be submitted by individuals with full corporate authority. Filings by unauthorized parties can be challenged, and courts often disagree on how such restrictions in organizational or loan documents are enforced.

The question of who has the authority to file bankruptcy isn’t just a legal technicality. It can directly affect creditors’ ability to recover funds and shoppers’ confidence in the company’s ongoing operations.

"Courts disagree over whether provisions in a borrower's organizational documents or loan agreements designed to restrict or prevent the borrower from filing for bankruptcy are enforceable as a matter of federal public policy or applicable non-bankruptcy law," JonesDay shared.

There is, however, a precedent for bankruptcy courts to throw out cases when they are filed without the proper board members signing off.

In one recent case, "the U.S. Bankruptcy Court for the Northern District of Illinois granted a lender's motion to dismiss a chapter 11 filing by a special purpose limited liability company because an independent director appointed by an agent of the lender did not consent to the filing, as was required in the loan agreement and the debtor's LLC agreement."

According to the court, "the requirement for the director's consent to a bankruptcy filing violated neither federal public policy nor applicable non-bankruptcy law because the director had explicit fiduciary duties to the debtor and its creditors."

It's not the same legal situation, but a New Jersey Judge has thrown out a Dec. 17 Chapter 11 bankruptcy filing for Ashley Stewart, Inc., a New Jersey-based plus-size women’s apparel retailer.

Ashley Stewart has its bankruptcy invalidated

Ashley Stewart, Inc. filed for Chapter 11 protection on Dec. 17 in the U.S. Bankruptcy Court for the District of New Jersey.

“The filing was authorized by a newly reconstituted board to challenge a ‘disputed’ November 2025 UCC Article 9 foreclosure sale of the company’s assets to G Ashley Inc., an entity allegedly controlled by former insider management,” Bondoro reported. 

• Ashley Stewart, Inc. reports $10 million to $50 million in assets and $50 million to $100 million in liabilities.
• The filing indicates that there will be funds available for distribution to unsecured creditors.
• The case number is 25-23314.

Similar to past cases where bankruptcy filings were dismissed for lack of board authorization, the judge’s ruling against Ashley Stewart reinforces that proper corporate approval is critical before seeking Chapter 11 protection.

The filing was made to stop Wingspire Capital, the company's top creditor from liquidating the brand.

“The debtor asserts the sale, orchestrated by senior lender Wingspire Capital, was ‘tainted by insider misconduct,’ undervalued the assets, and improperly excluded bona fide higher offers. The debtor, which is currently non-operating but retains control over critical bank accounts and financial infrastructure, intends to file an adversary proceeding to void the sale and recover the assets for the benefit of creditors,” according to court documents filed on PacerMonitor.

That bankruptcy filing has now been thrown out.

"A New Jersey bankruptcy judge on Tuesday (Dec. 23) dismissed the Chapter 11 case of plus-size clothing retailer Ashley Stewart, saying it had been filed without proper authority by board members appointed in violation of a state court order," Law360 reported.

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Judge Stacey L. Meisel of the US Bankruptcy Court for the District of New Jersey ruled that the former board members who initiated the bankruptcy lacked authority to act on the company’s behalf.

"The dismissal came shortly after the company’s board of directorsurged the court to toss the Chapter 11 case. They accused former board members Ram Ajjarapu and Julia Klyashtorny of trying 'to wrestle control of the company,'" Bloomberg Law reported.

What's next for Ashley Stewart?

It's likely that new lawsuits will be filed to fight for control of the company.

The dismissal of the case, however, unfreezes the process of selling the company.

"Part of the goal of the bankruptcy filing was to freeze or halt a contested sale transaction involving G Ashley Inc., alleging a 'multi-state fraudulent transfer,' according to Bloomberg Law.

Going forward, the former board and the chain's current operators are likely headed to court to determine the fate of the company.

Where Ashley Stewart's creditors and customers stand

• Creditors are no longer protected by bankruptcy and may pursue claims.
• The company continues operating under its current board.
• Court challenges are expected over the contested asset sale and company control.
• All stores and the company’s website remain open.

Related: Luxury footwear brand files Chapter 11 bankruptcy as demand cools