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Modell’s Sporting Goods, Inc. – Court Looks Set to Give Debtors Sporting Chance Against COVID-19; Allow Debtors to Suspend Chapter 11 Cases for 45 Days, Including Cessation of Liquidation Activities and Termination of Most Employees without Pay

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March 25, 2020 – Further to a March 25th hearing, the Debtors have submitted a revised proposed order that would allow them to suspend their chapter 11 cases; shutting their 134 stores (and online efforts) for a period of 45 days and terminating the majority of their employees without severance pay [Docket No. 142]. Citing "social and ethical duties to promote social distancing," the Debtors had requested "a temporary suspension of all deadlines and activities in their chapter 11 cases, for a period of up to sixty days." Notwithstanding a reduction to 45 days, that suggests that the proposed order reflects the input of the Court and an imminent sign-off, the Debtors would likely have flexibility to both shorten and prolong the period depending on the status of COVID-19.

The proposed order reads in part: "To the extent they have not already done so, the Debtors shall immediately (i) cease operations, including Store Closing Sales, at all 134 of their retail stores as well as fulfillment of orders on the e-commerce site, (ii) terminate store-level and distribution center employees, without severance, and (iii) cease all in-person operations at their corporate headquarters and terminate most corporate employees, without severance."

There is nothing in the Debtors' motion or proposed Court order that would seem to anticipate the interplay of (i) a Court order which allows for the termination of employees without severance pay, on the one hand, and (ii) state and federal efforts to mitigate the impact of COVID-19 on employees that have lost their jobs, on the other.

The Court's order also apparently brushes aside several objections (and joinders to those objections) filed by landlords who object to the Debtors' request for a modified budget that does not include the payment of rent during the "Operational Suspension." One of the objecting landlords [Docket No. 131], sums up the landlords' hostility to the Debtors' efforts as follows: "The Debtors seek the entry of an order broadly suspending these cases under sections 105 and 305 of the Bankruptcy Code, including with respect to the Debtors’ obligations under section 365(d)(3) of the Bankruptcy Code, in light of the ongoing COVID-19 pandemic for a period of up to 60 days. The circumstances presented by the COVID-19 outbreak are unprecedented, but so too is the scope of the relief requested by the Debtors, which would give the Debtors the benefit of an injunction but without any of the obligations that come with being a debtor-in-possession."

In a March 23rd motion requesting the suspension, the Debtors' stated, “The unprecedented, exponential spread of Coronavirus disease COVID-19 (‘COVID-19’) throughout the United States over the course of the last week, along with the resulting, state-imposed limitations and prohibitions on non-essential retail operations, has forced the Debtors to re-evaluate the short-term trajectory of their chapter 11 cases. The cornerstone of these cases is the liquidation of the Debtors’ 134 stores and e-commerce site through store closing sales. Notwithstanding the Debtors’ best-laid plans, COVID-19 has prevented the Debtors from conducting the robust liquidation sales that seemed possible just one week ago; it has left the Debtors with no choice but to temporarily ‘mothball’ their operations to preserve value, with the hope that they can recommence operations in the near future and successfully liquidate their inventory for the benefit of all parties-in-interest.

In order to mothball their operations and abide by their social and ethical duties to promote social distancing, the Debtors seek a temporary suspension of all deadlines and activities in their chapter 11 cases, for a period of up to sixty days, pursuant to section 305 of the Bankruptcy Code, without prejudice to their right to seek additional time. Critically, the Debtors seek to defer payment of all expenses other than those that are absolutely essential, as outlined in their Modified Budget. Moreover, as part of the Bankruptcy Suspension, the Debtors have instituted or intend to immediately institute an Operational Suspension, which will entail, among other things:

  • The cessation of operations, including Store Closing Sales, at all 134 of their retail stores as well as fulfillment of orders on their e-commerce site
  • The termination of store-level and distribution center employees; and
  • The cessation of all in-person operations at their corporate headquarters and termination most corporate employees, leaving in place a skeleton crew of essential employees to effectuate critical human relations, finance, and infrastructure technology functions during the Operational Suspension.

The Debtors, along with their professionals, have developed a plan to re-operationalize after COVID-19 abates and believe that the breathing spell provided by the Bankruptcy Suspension is in the best interests of their estates and all creditors as it will allow the Debtors, in time, to maximize the value of their inventory and leasehold interests. The Debtors recognize that all parties are suffering during these uncertain times. Nevertheless, the Debtors believe that the Bankruptcy Suspension will inure to the benefit of all parties such that it is warranted pursuant to section 305 of the Bankruptcy Code.”

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The post Modell’s Sporting Goods, Inc. – Court Looks Set to Give Debtors Sporting Chance Against COVID-19; Allow Debtors to Suspend Chapter 11 Cases for 45 Days, Including Cessation of Liquidation Activities and Termination of Most Employees without Pay appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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