Revlon Inc has rejected a shareholder demand for an official equity committee in its bankruptcy case, stating that it would not benefit shareholders in the long run. The cosmetics giant argued that its $3.5 billion debt load meant that shareholders were unlikely to receive anything from the bankruptcy proceedings. Forming an equity committee would incur costs that outweigh any potential benefits.

The demand for an equity committee came from a group of minority shareholders who believed that their interests needed advocacy. They pointed to the increase in Revlon’s share prices after the company filed for Chapter 11 as evidence of the stock’s long-term value. They disputed the notion that Revlon’s stock was solely influenced by retail investors and social media hype, calling it a “meme stock”.

However, Revlon highlighted that approving equity committees in bankruptcy cases is rare. They cited the example of Hertz Inc’s bankruptcy, where no equity committee was appointed. Despite this, Hertz shareholders achieved a rare win in 2021, which the minority shareholders in Revlon saw as a comparable situation. Revlon noted that stock price alone does not reflect the true value of the company, as shareholders cannot be paid until all debts are settled. The company’s unsecured bonds have been trading at significantly lower prices, indicating low demand for Revlon’s stock.

The argument put forth by Revlon was supported by junior creditors and senior lenders, who believed that stock price fluctuations were not based on market realities. Senior lenders stated that shareholders’ focus on stock prices was misguided, as debt markets had a more pessimistic outlook on Revlon’s future value.

The minority shareholders have yet to respond to Revlon’s statement. In the meantime, trading in Revlon shares was temporarily halted by the New York Stock Exchange due to price fluctuations. The company’s shares closed at $8.22 on Monday. Revlon initially filed for Chapter 11 in June due to its $3.5 billion debt, which prevented timely payments to critical vendors in its cosmetics supply chain.

The request for an official equity committee will be reviewed by U.S. Bankruptcy Judge David Jones in a court hearing scheduled for August 24.

Useful links:

1. U.S Securities and Exchange Commission – Corporate Bankruptcy: Reorganization
2. Retail Dive – Revlon gets shareholder demand to form equity committee in bankruptcy