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Redwood Capital is turning to a critical LME ruling earlier this year to defend its financing moves to lingerie brand Hunkemoller.

In the New York litigation, plaintiffs used much of their brief to argue breach of contract, the inapplicability of no-action clauses, and the defendants breach of the implied covenant of good faith and fair dealing.

Redwood, in its reply, primarily focuses on the plaintiffs fraudulent transfer arguments. Redwood presents the narrative that plaintiffs in the first instance, argued fraudulent transfer, when they realized that didn’t work they tried “conjur[ing] an imaginary transaction” and when that argument didn’t hold, they advanced “meritless form-over-substance arguments, such as relying on imaginary procedural defects to unwind the Financing.”

The hedge fund cites Mitel, and quotes Judge Schecter who found “injection of substantial capital into the debtor’s coffers” when the debtor is in dire need, is a “counter badge” of fraud, not a fraudulent transfer.

Redwood argues that its financing was analogous to the facts of Mitel and should be viewed as a “financial lifeline” and not a fraudulent transfer for multiple independent reasons under New York law.

First, Redwood contends there is no allegation of an actual transfer or company assets. Redwood alleges that plaintiffs, recognizing this, argue that Redwood’s new priority is not considered a transfer but instead an “obligation incurred” separate from the financing.

However, Redwood cites New York law that stands for the proposition that suggests prioritizing preexisting debt is not considered an incurrence of an obligation.

Second, the hedge fund asserts that an alleged preference that did not actually deplete the company’s assets cannot simply become a fraudulent transfer claim. Redwood argues that plaintiffs are trying to invoke fraudulent transfer law to “impose parity with other secured creditors” when in reality the law was drafted to protect unsecured creditors.

The rationale here is that “a secured creditor with a valid lien will be able to protect its interests using the powers available to it including the parties’ contract and UCC Article 9.” Additionally, Redwood claims that even if the company shows a preference for certain creditors over others, that is not a fraudulent transfer.

Finally, Redwood alleges that plaintiffs cannot show any required depletion of assets since borrowing €50m in new money did not deplete assets nor did changing debt priorities amongst existing lenders.

Third, Redwood argues that the plaintiffs did not include any allegation of “badges of fraud” to support actual fraudulent intent. Here, Redwood compares the transaction to Mitel, where the company’s purpose was to “stay afloat, generate more income, or just benefit itself,” explaining that the Hunkemoller transaction was “substantially the same deal,” and executed in the same way and lacks any badges of fraud.

Specifically, (1) the transfer was disclosed, no concealed, (2) there was no transfer to an “insider,” (3) the company was not insolvent, (4) there was no scheme to divert assets from new creditors, and (5) the company received reasonably equivalent value for the up-tiering.

Redwood dismisses the rest of the plaintiffs arguments by asserting that the company and Redwood complied with the indenture, since consenting to the amendments, waiving defaults, and issuing counter-directions to the trustee were authorized through written certification from the necessary parties.

Hunkemoller has received an extension through 9 June, 2025 to file its reply brief due to a personal matter that has come up for its lead attorney.