July 14, 2022 – The Debtor filed a motion to extend the periods during which it has an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including November 14, 2022 and January 13, 2023, respectively [Docket No. 286]. Absent the requested relief, the Plan filing and solicitation periods were scheduled to expire on July 15, 2022, and September 13, 2022, respectively.
On March 17th, Buyk Corp. (“Buyk” or the “Debtor”) filed for Chapter 11 noting estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $1.0mn and $10.0mn.*
*See more detailed description of assets and liabilities (with latter over $80.0mn) in Prepetition Debt section below.
In a press release announcing the filing, the Debtor advised that: “The company intends to use the Chapter 11 proceedings to wind down operations and dispose of inventory and assets. As of March 4th, the company has ceased all operations from its 39 stores in New York City and Chicago."
The Debtor's chief executive officer, James Walker, further commented: "We have diligently explored all possible options and partnerships to restructure Buyk and keep the business going, however, the war in Ukraine and subsequent restrictions in funding have unfortunately made it impossible to continue operations."
The Extension Motion
The extension motion [Docket No. 286] explains, “Although the Debtor has made significant progress in the case…there are several remaining substantial tasks to accomplish, including, among other things, marketing and selling its intellectual property, valued at $10 million in its schedules, and completing the sale of its equipment worth several million dollars.'
As to the "remaining substantial tasks," the Debtor's list of achievements to date helps to fill in te gaps:
"Within the first four months of this Chapter 11 Case, the Debtor has made significant progress towards achieving its goal of liquidating its assets through a Chapter 11 plan. During this time, the Debtor has:
- ensured a smooth transition into Chapter 11 through approval of First Day Motions, including, among others, motions relating to cash collateral, cash management, wages, utilities and reclamation procedures (Doc. Nos. 6, 7, 10, 13 and 14);
- filed comprehensive schedules of its assets and liabilities and a statement of financial affairs, which required review and analysis of hundreds of creditors, contracts and leases (Doc. Nos. 132 and 133);
- resolved nearly all of its disputes with landlords relating to rent and other expenses for space that it previously occupied and, to the extent possible, the Debtor has sold its inventory stored at each of these locations (see Order Granting Omnibus Motion Authorizing Rejection of Certain Unexpired Leases (Doc. No. 226));
- responded to governmental agencies, former employees and claimants;
- retained Sherwood Partners, Inc. as Sales Agent to facilitate the sale of Debtor’s intellectual property (Doc. No. 284);
- secured approval of its Key Employee Incentive Plan to incentivize its few remaining employees to maximize the liquidation of its assets (Doc. No. 186);
- engaged in negotiations regarding a significant refund claim based on undelivered goods; and
- communicated with the United States Trustee and secured lender Legalist, Inc. (‘Legalist’) to reach a consensus on how best to move forward with the bankruptcy case.”
A hearing on the motion is scheduled for August 2, 2022, with objections due by July 26, 2022.
Background
Goals of the Chapter 11 Filings
According to the Walker Declaration (defined below), "The Debtor intends to proceed as expeditiously as permitted through its Chapter 11 case for the purposes of effecting a sale of substantially all of its assets subject to higher and better offers in an auction process approved by the Court."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Walker Declaration”), James Walker, the Debtor's chief executive officer, detailed the events leading to Buyk’s Chapter 11 filing. The Walker Declaration provides: “Prior to this bankruptcy filing, the Debtor operated an ultra-high speed grocery business with 39 locations, 31 in the New York metropolitan area and 8 in the Chicago metropolitan area. The Debtor commenced operations in April of 2021.
After an initial seed round of investment by Russian-based investors in the amount of approximately $63.5 million in convertible notes and $11 million in unsecured loans, in or about January 2022, the Debtor was in the process of a seeking additional equity investment of approximately $250,000,000. Due to the mounting indicia of a potential Russian dispute with Ukraine, the Debtor determined in January 2022 to pivot to a United States-based equity raise and actively sought series A funding from numerous institutional investors.
The United States fund raising was going reasonably well when Russia commenced its invasion of Ukraine. At that juncture, the Debtor was confronted with an existential and, ultimately, fatal crisis. First, any chance of obtaining equity or debt investment from the prominent institutional investors which had been interested in funding the Debtor was now lost. Second, although the Debtor was operating and earning revenue, it was in the beginning stages of its growth and was relying, in part, on cash infusions by the founders to continue its operations and expansion. Unfortunately, although the founders were not, and are not, subject to any sanctions, restrictions on the ability to transfer any funds out of Russia made it impossible for the founders to provide any further funding to the Debtor.
Since February 28, 2022, working together with the management team, I have tried to pursue, on behalf of the Debtor, an asset or stock sale to a variety of entities in a similar or adjacent business as the Debtor or a rescue loan /equity investment. In light of the monthly deficiency between income and expenses, an impending payroll due on March 11, 2022 and other pressing obligations to creditors, plus the negative impact of the Russia/Ukraine crisis on investor interest, the Debtor began seeking a loan from several potential debtor-in-possession ('DIP') lenders in order to fund final payroll to Debtor’s employees and independent contractors in the amount of approximately 800 and an orderly liquidation in the context of bankruptcy.
In the exercise of its fiduciary duties to all stakeholders it became apparent that the only viable and realistic strategic alternative for the Debtor was to obtain a short term bridge loan secured by all of the Debtor’s assets, including unencumbered brand new (and almost new) refrigeration and other food storage equipment with a book value of approximately $11 million, grocery items (including 20% perishable items) with a book value of $1.7 million, and cash of approximately $700,000, in a sufficient amount to fund all outstanding payroll expense and an expedited sale process in bankruptcy. The goal, of course, is to maximize the value of these assets in bankruptcy in order to repay the DIP Lender, administrative and priority claims and to, if possible, provide some level of distribution to unsecured creditors.
After having discussions with over thirty (30) potential funding sources, including multiple potential DIP lenders, on March 10, 2022, the Debtor entered into a Term Sheet with Legalist for a debtor-in-possession loan commitment of $6.5 million (the 'DIP Loan'). On March 4, 2022, the Debtor furloughed approximately 98% of all employees. On March 11, 2022, the Debtor terminated the employment of all of its employees, except for six staff members, who the Debtor proposes to continue to employ post-petition to assist in the orderly wind down in this liquidating Chapter 11.
On March 11, 2022, Legalist and the Debtor executed that certain Pre-Petition Term Loan Credit Agreement in the maximum amount of $6.5 million (the 'Credit Agreement'), which provided for two separate draws: (i) $4 million on March 11, 2022 for the sole purpose of satisfying all payroll obligations for the Debtor’s terminated employees and, (ii) up to $2.5 million to be drawn post-petition pursuant to a budget approved by the Court as part of Court approval of the DIP Loan and the funds borrowed both pre and post-petition….
The purpose of the post-petition availability under the DIP Loan is to fund an expedited and efficient sale process of the Debtor’s assets. In light of the existence of perishable inventory and the desperate need to avoid administrative rents starting in April 20224 , the Debtor retained certain auctioneers pre-petition with the intent to seek Court approval of the retention of such auctioneers and the sale process. The Debtor’s goal is to complete the sale process within sixty (60) days of the Petition Date and to then seek confirmation of a plan of liquidation to distribute the remaining sale proceeds after satisfaction of the DIP Loan."
Prepetition Indebtedness
The Debtor’s principal pre-petition secured lender is Legalist whose secured debt against the Debtor is in the amount of $4,000,000 as of the Petition Date. Legalist has a blanket lien on all of the Debtor’s assets. Legalist has committed to funding up to an additional $2.5 million to fund the Chapter 11 case. The Debtor has no other secured creditors.
The Debtor is also a borrower under certain unsecured convertible notes in the aggregate amount of $63.5 million during the period from June-December 2021 (the 'Convertible Notes'). In addition to the secured debt to Legalist and the Convertible Note debt, the Debtor has approximately $18 million in unsecured debt. Finally, the Debtor anticipates significant claims arising from the rejection of its leases (although as part of the sale process)."
Significant Shareholders
Rodion Shishkov owns 4,189,348 of the Debtor's securities, and Viacheslav Bocharov owns 4,189,387.
About the Debtor
According to the Debtor: “Buyk is a real-time retail grocery delivery service that was launched in September 2021 with the mission of giving back time to American consumers. The company delivered groceries and essential items to customers’ doorsteps in 15 minutes or faster – with no minimum spend and no delivery fee. Buyk operated a network of 39 stores in New York and Chicago."
Corporate Structure
Rodion Shishkov and Viacheslav Bocharov, each own 46.55% of the Debtor. The remaining 6.9% of the Debtor is owned by Kirill Shishkov. Prior to the financial distress described above, the Debtor formed a German wholly-owned subsidiary named BUYK GmBH. That entity has no assets, liabilities and operations and has little if any value.
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