GREEN BAY - Shopko borrowed $179.5 million from lenders to pay dividends to Sun Capital Partners, its private equity owner, and other investors between 2007 and 2015.

The retailer's payments to Sun Capital, which bought Shopko for $1.1 billion in 2005, were disclosed as part of an ongoing investigation into transactions that could give rise to claims of conflicts of interest as Shopko's bankruptcy case moves forward.

The findings of the investigation, led by two independent board members appointed by Shopko in November 2017, threaten to undermine some creditors' support for Shopko's bankruptcy reorganization plan just as its parent company, Specialty Retails Shops Holding Corp., is preparing to solicit proposals from buyers and investors.

The independent directors, referred to in bankruptcy filings as the Special Committee of Independent Directors, will determine whether Shopko might have claims against Sun Capital related to the dividend payments.

Secured and unsecured creditors concerned with Shopko's proposed terms for reorganization seized on the details of the investigation during a hearing Thursday in federal bankruptcy court in Nebraska.

An attorney for Shopko Note Holding LLC, the investment trust that is Shopko's largest landlord, said the report showed Sun Capital is not contributing to the effort to salvage the company, while many of Shopko's creditors risk not being paid anything on their claims against the company.

Shopko Note Holding lent Shopko $35 million in January 2018 as the company sought to avoid bankruptcy by downsizing and trying to find a buyer

"It looks like $50 million was taken out of the company within 4 years of this case," Shopko Note Holding attorney Brian Koenig said. "We put in $35 million on a secured basis because the company was in trouble. Sun Capital is contributing nothing to this plan. The primary beneficiary will be them and it’s on the backs of our claim."

The investigation is looking at five dividends paid between 2007 and 2015:

$55 million on May 14, 2007

$20 million on Sept. 24, 2010

$10 million on Dec. 3, 2010

$4.5 million on Aug. 29, 2013

$50 million June 19, 2015

The investigation also detailed consulting fees of $1 million paid by Shopko to Sun Capital on a quarterly basis, and 1 percent consulting fees Sun Capital collected for work on transactions or results. The investigation found six such payments since 2012.

In 2015, for example, Shopko paid a $50 million dividend to its owners, including Sun Capital. The dividend was financed by borrowing from one of Shopko's lines of credit. In addition, Sun Capital Management consulted with Shopko on the dividend payout and earned a 1 percent fee of $500,000.

When it filed for bankruptcy protection from creditors on Jan. 16, Shopko reported assets of less than $1 billion and liabilities between $1 billion and $10 billion.

While Shopko was using credit to pay dividends, it was not paying sales tax, according to a claim filed by the Wisconsin Department of Revenue.

The claim states Shopko owes the state $13.5 million: $8.2 million in sales and use taxes that were unpaid from 2013 to 2016, and $5.3 million in unsecured penalties. The state's Department of Justice raised concerns during Thursday's hearing the reorganization plan could pay priority tax claims like the state's less than the amount owed.

Thursday's hearing covered objections to the reorganization plan from the state, banks and other lenders, and unsecured creditors, those who are owed money but do not have claims to collateral and are most likely to go unpaid.

In spite of the creditors' concerns, Shopko's court filings indicate the company still expects the reorganization plan to win the support of lenders, landlords, vendors and at least some of the unsecured creditors.

Shopko argues its proposal to close more than 200 stores and sell off its pharmacy business is the only way to find a buyer or investor, preserve the business and pay its creditors.

In spite of its ongoing investigation, the special committee did note it was "appropriate and in the best interests" of Shopko to move the Chapter 11 plan forward.

Shopko's attorneys warned the creditors' objections aim to "derail this progress to advance parochial interests."

"Commencing solicitation now, while the Debtors’ plan sponsor process is ongoing, is the only manner by which the Debtors can satisfy their (debtor in possession financing) milestones, keep administrative costs to a minimum, and best position them to preserve a going concern," the company said.