While the duel could have an impact on the finances of former lenders to Old Sears, which includes Cyrus Capital Partners LP and Lampert’s ESL, the Sears retail chain is now a separate entity, and its fate is no longer tied to Old Sears.

An ESL representative declined to comment and a Cyrus representative didn’t respond to an email seeking comment.

HIGH PRIORITY

The dispute centers on so-called administrative claims, which are given priority by courts because they are debts needed to reorganize in bankruptcy, like legal fees and employee wages. At the start of a major case like Sears, the company sets aside what it thinks will be enough cash to cover those claims.

If that estimate is wrong, advisers, lawyers and other parties who helped untangle the company’s affairs won’t get fully paid for their work. Had Lampert won, he would have been competing with them for Sears’ dwindling cash pool.

The Sears estate successfully blocked an attempt to classify the debt held by second-lien lenders as administrative claims, which get higher priority in the pecking order of payments, according to a court filing. That means the second liens -- the kind of debt held by ESL and Cyrus -- will likely get paid out at a discount along with other lower-priority claims.

WINDING DOWN

ESL and Cyrus argued in June that the Sears estate wrongly sapped the value of the collateral supporting their debt. An expert hired to support the second-lien lender’s claims said in a court filing that the lenders are entitled to an administrative claim of about $718 million.

Judge Robert Drain disagreed. He said that because there was no drop in the value of the second-lien holders’ collateral, those lenders aren’t entitled to any of the estate’s wind-down account, according to his decision filed Monday afternoon.

Drain first indicated he would rule in favor of the estate on the priority of claims issue in a court hearing last week, rejecting the testimony of ESL’s hired experts. In the same hearing, he denied a motion by the estate to imposed a $1.4 billion surcharge on the second-lien holders.

The Sears estate has argued that ESL cannot collect more than $50 million, no matter how much money the bankrupt entity may be able to collect in the future from lawsuits, which are among the only assets left to pay creditors.

The fight over the claims is part of an ongoing battle over the dwindling assets of the Old Sears estate. Each side has sued, accusing each other of withholding assets promised in the sales agreement that gave Lampert full control of Sears, which he led in the years leading up to the bankruptcy.

The estate appears to be teetering on the edge of administrative insolvency, with a document filed in court on Tuesday showing the estate with a slim $5 million administrative surplus in a “base case” scenario but a $60 million to $65 million deficit in its “downside case” scenario.

The confirmation hearing in the case is slated for August 16.