UPDATE: January 18, 2019: Following a hearing this morning, an ESL spokesperson told Retail Dive in a statement that all financing and other transactions involving Sears' assets were done "in good faith on fair terms beneficial to all Sears stakeholders and approved by the Sears Board of Directors..." The statement continued: "We have cooperated fully with [the creditor committee's] review and remain confident that the processes we followed are unimpeachable. We reject any assertion to the contrary and will vigorously contest any effort to assert claims against ESL, its principals or affiliates concerning these transactions." Additionally, the sale hearing was delayed to Feb. 4.

Dive Brief:

• The Sears Creditor's Committee, a small group who speak on behalf of all unsecured creditors, are objecting to Sears Chairman Eddie Lampert's more than $5.2 billion bid for the department store chain. In court documents filed Thursday, the creditors argue that Sears' decline was "precipitated by years of misconduct by Lampert, ESL and others against Sears and its creditors."

• By accepting ESL's bid, Sears "[has] capitulated to Lampert's and ESL's efforts to control the remaining assets of Sears and deprive[s] unsecured creditors, already damaged by Lampert's and ESL's multi-year and multi-faceted scheme, of any chance of recovery," the document stated.

• Using sealed documents as evidence, the creditors are arguing two main points: the first that ESL's debt claims should be recharacterized as equity and the second that the company should recover funds and value lost from ESL's and Lampert's past dealings with Sears, including the spin-off of Land's End and the transfer of real estate to Seritage Growth Properties. The creditors are calling for a hearing to air their grievances. A Sears Holdings spokesperson declined to comment on the matter to Retail Dive.

Dive Insight:

ESL acknowledged on Thursday in a statement emailed to Retail Dive that its more than $5.2 billion bid to keep open more than 400 stores and hold on to roughly 45,000 jobs has been accepted by Sears. But, if the arguments raised by the creditors are found to have merit, that could throw a wrench in that plan, as a bankruptcy judge must still review the bid.

Even without these new challenges, it was always clear that recoveries for unsecured creditors would be limited, Josh Friedman, global head of Restructuring Data at Debtwire, told Retail Dive in an interview Friday.

He added that the argument breaks down into two key parts.

On one hand, the goal is to say that debt claims should be treated as equity. "The reason the UCC brings this is because unsecured creditors who have debt claims will recover on assets on this case before ESL and Lampert," he said. "It also would benefit all other creditors."

On the other hand, he said, is, essentially, fraudulent conveyance. That means, in simple terms, that the creditors are arguing that there have been improper actions made in cases like the 2014 spinoff of Land's End and the Seritage real estate dealings. It's not under dispute that these actions took place, Philip Emma, a senior analyst at Debtwire, also told Retail Dive in an interview on Friday.

"What they're going to do is try to recover based on those transactions," Friedman said, adding that the creditors are aiming to ultimately bring funds back to the company.

Fraudulent conveyance litigation provides a two-year look-back period, although that timeline is extended under some state laws. This complaint runs parallel to the current bankruptcy proceedings, Friedman said.

The real question, Emma said, is, "Do they really mean it?"

"Do [the unsecured creditors] really believe their best scenario for recovery is to get Lampert's position equitized and to do all the things they say they want as remedies?" Emma asked. "Or do they view their best option as keep pushing for that but they're willing to cut a deal somewhere else?"

A hearing scheduled for today is expected to be largely procedural, and a hearing regarding the approval of the bid will take place on Feb. 4.