Lampert wanted his payment for parts of Sears Holdings Corp. (SHLD) to include the conversion to equity of $1.3 billion in debt that his hedge fund extended to the retailer.

Those loans, however, are the subject of controversy. Other creditors have threatened to pursue claims against Lampert and the hedge fund, ESL Investments Inc., claiming the deals created conflicts of interest. It was one reason the company’s advisers rebuffed the Lampert bid, which totaled $4.4 billion.

Sears is expected to ask a bankruptcy judge Tuesday morning whether it can proceed with liquidation, Reuters reported. The hearing was scheduled on Friday, after Lampert’s offer was rejected.

Lampert intended to keep 425 stores open and 50,000 of its remaining employees on the job.

Another Bidder

Many of those deals added to the retailer’s mounting debt while granting liens on previously unencumbered assets, according to the unsecured creditors.

An ESL spokesman referred to a prior statement from the hedge fund that the transactions were valid, conducted on fair and reasonable terms and “show the firm’s consistent support for Sears in its efforts to return to profitability amid disruption in the retail industry.”

“Any allegation that ESL received ‘sweetheart’ deals is plainly wrongheaded and intended to inflame opinion against ESL,” the hedge fund said in court papers.

Even if plans for a liquidation are finalized, Lampert or another bidder could still step forward to buy and operate some stores. That’s what happened when Toys “R’’ Us announced its shutdown last year, though none of those efforts succeeded before the final stores closed. A smaller effort to revive the toy-store chain is now underway.

Sears Holdings, which also includes the Kmart chain, entered Chapter 11 protection in October with about $11 billion in debt. An auction for assets is slated for Jan. 14.

Lampert’s ESL sank $2.6 billion into Sears starting in 2012 to finance a series of spinoffs, rights offerings and refinancings. Other stakeholders have challenged Lampert’s claim to repayment on that debt. Lampert was Sears’s biggest shareholder at the time he made the loans, and his position on both sides of those deals points to conflicts of interest, they say.

More Scrutiny

Creditors have requested more scrutiny of those deals, asking the court to examine transactions including the spinoff of its Lands’ End clothing line and other so-called related-party transactions.

Lampert’s latest rescue offer asked to close the books on challenges to those deals. They include the 2015 sale of more than 200 of its most valuable stores to the Seritage Growth Properties real estate investment trust, the 2012 separation of its smaller format Sears Hometown and Outlet divisions, and various debt transactions.

Some creditors have asked a question that’s lingered for years: Why try to revive Sears now after years of unsuccessful effort? In November, a group of unsecured creditors called Lampert’s push to keep the retailer afloat “an unjustified and foolhardy gamble with other people’s money.”