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Ashley Stewart's Chapter 11 case was dismissed after the United States Bankruptcy Court for the District of New Jersey (Meisel, J.) found that it was not an authorized filing. The court determined that the individuals who filed the case (the former CEO and director, and an investor) lacked corporate authority to commence a bankruptcy case and, as such, the court could not allow Ashley Stewart to remain in bankruptcy.
The parties that had purported to authorize Ashley Stewart's bankruptcy case claimed they did so to unwind an Article 9 sale of substantially all of the company's assets, and to address an alleged rigged sale process to favor an insider and undue lender influence during the sale process.
The sole director of Ashley Stewart moved to dismiss the bankruptcy case immediately following the filing, arguing that it was filed by a purportedly "reconstituted" board without corporate authority, in bad faith, and in violation of a consent order in pending state court litigation. The consent order, which was entered June 18, 2025, provided that the managers of the majority owner of Ashley Stewart's corporate parent had to authorize the bankruptcy filing. The Bankruptcy Court found that they had not done so.
The sole director also argued that the parties that had attempted to authorize a bankruptcy filing had previously consented to Article 9, participated in the sale process, and agreed not to challenge the validity or result of the auction. As a result, the sole director characterized the Chapter 11 filing as an improper attempt to relitigate pre-sale disputes and sought dismissal.
Rather than reviewing the merits of the Article 9 sale, the court instead focused on the lack of corporate authority and the import of the consent order. In granting the dismissal and rejecting the course of action taken by the former CEO and other parties, the court noted that "[t]here is still a forum that is available, so their rights aren't cut off." In particular, the parties could still properly raise issues in state court.
Going forward, the Ashley Stewart dismissal is a reminder to parties and practitioners to make sure they have clear corporate authority to file for bankruptcy. Not only will filing without authority cause harm, unnecessary costs, and potential reputational damage to a company, but it could also result in sanctions. Indeed, the court ordered that motions for sanctions may be filed and, subsequently, a hearing on sanctions would be scheduled.
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