J & M Sales – Court Approves Critical Vendor Bailment Program that Debtors State is Only Alternative to Store Closing Process

September 27, 2018 – The Court hearing the J & M Sales case approved (i) a proposed critical vendor bailment program with respect to $15,000,000 of new critical vendor deliveries and (ii) entry into bailment agreements with critical vendors and a related escrow agreement with Michael Fallas [Docket No. 514]. As previously reported [Docket No. 491], “After consultations internally and with the professionals employed by the Committee, the Bailment Program is the only arrangement currently available to these estates that would allow the Debtors to generate the necessary liquidity to avoid a store closing sale process. On September 20, 2018, the Debtors filed their Final Sale Motion that seeks to schedule an auction for the sale of the Debtors’ assets on October 8, 2018. However, under the terms of the DIP Credit Agreement and the Final DIP Order, the date for such auction can be extended until October 26, 2018 if the Debtors receive $15,000,000 at cost of eligible new inventory on 120-day payment terms (the ‘New Inventory’) by October 5, 2018 (the ‘Minimum Inventory Threshold’). In order to assure Critical Vendors that they should ship the New Inventory to the Debtors notwithstanding the risk that the Debtors will not meet the Minimum Inventory Threshold or that the current sale deadlines are not otherwise extended, the Debtors propose to enter into bailment arrangements with Critical Vendors (the ‘Bailment Program’). The Debtors will act as bailee for the New Inventory.  If the conditions for the release of the New Inventory are met, including satisfaction of the Minimum Inventory Threshold, the bailment will be terminated and title will pass to the Debtors, such that the Debtors will be able to sell the New Inventory in the ordinary course of business subject to the terms of the Final Critical Vendor Order. If the conditions to the bailment are not met, title will not pass to the Debtors, and the New Inventory will be returned to the respective Critical Vendors….As a further assurance of payment to Critical Vendors for shipping the New Inventory, the Debtors’ principal, Michael Fallas (‘Fallas’), has committed to deliver the sum of $3,000,000 (the ‘Escrow Funds’) to a third party escrow holder as security for any unpaid obligations of the Debtors associated with the New Inventory. The Escrow Funds would be available to Critical Vendors to the extent that there is any shortfall in the payment of the Debtors’ obligations for the New Inventory within 135 days after the New Inventory is released to the Debtors on October 5, 2018.”