April 6, 2020 – Only one business day after receiving the Debtors' emergency motion to convert their cases to Chapter 7, the Court has done just that; taking an unwell but stable Chapter 11 debtor (otherwise managing an orderly store closing process and asset sale) off of the Chapter 11 ventilator: "breathing room" no longer relevant or possible.
In an example of what may soon be referred to as Chapter 19 cases, COVID-19 has in a matter of days left a debtor that had been on the verge of a consensual Plan with $zero revenues (even the diminished revenue of store closing sales rendered impossible) and its desired "mothballing" strategy in tatters as its lenders made a "live or die" decision for them. In this case determining that "no viable path forward in chapter 11 [existed] that would garner the support." We will undoubtedly see many more 11-to-7 conversions as a result of COVID-19, but we will likely see exponentially more debtors head for Chapter 7 liquidation directly.
On Friday April 3rd, the Debtors filed a motion to convert stating that after "working around the clock for days" to save the Chapter 11 process, critical lender support had evaporated over the previous week as the indeterminate duration of the pandemic left "no viable path forward."
The motion states, “Even before government action in response to the COVID-19 pandemic made it impossible for the Debtors’ retail operations to continue, the consumer public’s understandable fear of the spread of the COVID-19 disease already had a devastating impact on the Debtors’ ability to implement their original restructuring plan. These key components included (a) the continuation of Store Closing Sales at substantially all of the Debtors’ 125 Art Van Furniture, Art Van Pure Sleep and Scott Shuptrine Interiors branded locations and eight of the Debtors’ Wolf Furniture branded locations, and (b) the operation of 44 Levin Furniture, Levin Mattress and Wolf Furniture locations pending consummation of a going concern sale of those business lines and related assets that was contemplated at the outset of these proceedings. Unfortunately, by the conclusion of the week ending March 14, 2020, customer traffic in the Debtors’ stores — both those participating in the Store Closing Sales program and the Levin and Wolf going concern locations — precipitously dropped below what any of the Debtors’ pre-bankruptcy and pre-COVID-19 pandemic financial could have predicted. As a consequence, it was quickly evident that continued retail operations of any sort would cause the Debtors to incur expenses for the foreseeable future that far outstripped the revenues generated. Ultimately, of course, the aforementioned restrictions on economic and other activity that various state and local governments determined to be necessary to slow the spread of the COVID-19 disease effectively removed any choice the Debtors had in the matter by mandating that the Debtors discontinue all retail operations and other non-essential business operations.
In order to preserve to the greatest extent possible the value of the Debtors’ assets and maximize the proceeds thereof that may eventually be distributable to their creditors, the Debtors had initially hoped — consistent with what has been recently approved in certain other retail chapter 11 bankruptcy proceedings to pursue relief from this Court authorizing the Debtors to ‘mothball’ their remaining assets and operations and to suspend substantially all activity in these chapter 11 cases until such time as the broader economic and public safety situations stabilized and hopefully improved sufficiently to allow the Debtors to resume value maximizing actions for the benefit of their creditors and other stakeholders. After consultation with advisors for the Prepetition ABL Agent and the Committee, as of last Thursday, March 26, 2020, the Debtors believed that they had at least conceptual support for pursuing this path, as the Debtors reported to this Court and parties in interest at the status conference held that day.
Unfortunately, despite the Debtors and their advisors working around the clock for days, in consultation with the Prepetition ABL Agent, the Committee and others, no viable path forward in chapter 11 emerged that would garner the support of the Debtors’ senior secured lenders and certain other stakeholders. With the COVID-19 pandemic still raging and by all reputable accounts likely to get worse in the next several weeks before it improves, the execution risk associated with any of these strategies appears to be unacceptably high for the Debtors to garner the support their senior secured lenders and other stakeholders necessary for the Debtors to be able to move forward. The Debtors’ ability to implement any of these strategies is further confounded by the reality that what remains of the Debtors’ cash on hand is likely inadequate to implement certain of these restructuring alternatives, such as the resumption of GOB Sales. Even in the best case forecasts available to the Debtors, virtually all of their remaining cash on hand would be consummated by the time the Debtors and their senior secured lenders conceivably might have some visibility into if or when any of these restructuring alternatives could be successfully implemented.
Furthermore, the Debtors have no ability, without the consent of the Prepetition ABL Agent, to implement any case suspension-based restructuring strategy. Of necessity, on or about March 19, 2020, after communicating with representatives of the Prepetition ABL Agent on several occasions about the Debtors’ increasing operating losses and need to take appropriate action to prevent further dissipation of the Debtors’ assets, the Debtors ceased operating their retail stores as going concerns and thereafter dismissed the vast majority of their employees. As a result, the Debtors have no top line revenue, such that each dollar expended by the Debtors at this point is not being replaced. For this and other reasons, the Debtors have no ability to demonstrate that their secured lenders are adequately protected to the degree required for the Debtors continue using cash collateral and other collateral without their consent. And, under the terms of the Interim CC Order, absent extraordinary relief from the Court, the consent of the Senior Secured Parties to use cash collateral and other collateral will expire no later than the end of the day Monday, April 6, 2020.
The Debtors, thus, find themselves with no choice other than to move for the prompt conversion of these Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code. Though this path is a difficult one that the Debtors are following only after exhausting all other alternatives, under these dire circumstances, the Debtors believe that converting these cases is in the best interests of the Debtors’ estates. The Debtors understand that the conversion of Chapter 11 Cases is supported by the Debtors’ senior lenders and not opposed by the Committee.”
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The post Art Van Furniture, LLC – In Sign of Things to Come, Debtors, Managing an Orderly Chapter 11 Process Only Weeks Ago, Succumb to COVID-19, Have Cases Converted to Chapter 7 appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.