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Law360 (April 6, 2020, 5:44 PM EDT) -- Citing a "parade of unfortunate events," a Delaware judge on Monday approved the conversion of home furnishing retailer Art Van Furniture LLC's bankruptcy to a Chapter 7 liquidation after the COVID-19 pandemic wreaked havoc on its Chapter 11 sale plans.
During a hearing held via telephone due to the ongoing public health crisis, U.S. Bankruptcy Judge Christopher S. Sontchi said he felt sympathy for stakeholders as circumstances worsened and the novel coronavirus crisis caused Art Van to change course in its bankruptcy and seek the Chapter 7 conversion.
"This case is very unfortunate," Judge Sontchi said. "It has really been a parade of unfortunate events."
Art Van filed its Chapter 11 petition early last month, citing extreme market conditions for its retreat into bankruptcy and carrying more than $200 million in debt. The company hit bankruptcy with plans to close down all but 44 of its stores while selling the remaining as a going concern.
However, Art Van closed all 169 of its retail locations March 19 after the governors of Michigan, Maryland and Pennsylvania — among others — instituted restrictions on the operation of nonessential businesses in an effort to mitigate the effects of the coronavirus. The store-closing sales were halted by the shutdowns, and the going-concern sale was terminated.
Founded in 1959, Art Van operated 169 furniture and mattress stores in Michigan, Indiana, Ohio, Illinois, Pennsylvania, Maryland, Missouri and Virginia under the names Art Van, Pure Sleep, Scott Shuptrine Interiors, Levin Furniture, Levin Mattress and Wolf Furniture.
Art Van's bankruptcy is set to officially convert to a Chapter 7 early on Tuesday, with a trustee to take over as operations wind down. Most employees have already been terminated, and the company is set to turn over its records to the trustee this week, according to comments in court.
"Everyone wishes the circumstances were otherwise," Art Van attorney Gregory W. Werkheiser of Benesch Friedlander Coplan & Aronoff said.
At a hearing last week, Art Van told the court that it did not have enough cash to pay its currently accrued obligations without additional access to money from secured asset-based loan provider Wells Fargo, and that no revenue was coming in after it was forced to close all of its stores and terminate most of its roughly 4,000 employees on March 19 due to the state orders.
At that hearing, Wells Fargo attorney Jennifer Feldsher of Morgan Lewis & Bockius LLP said the economic conditions for Art Van were cataclysmic.
While the lender has funded all previous payroll requests that have come from the debtor, she said that the termination of the majority of its workforce has led to Art Van seeking funding for unbudgeted expenses related to unpaid paid-time-off accruals, earned sales commissions and health care obligations associated with the debtor's self-funded insurance plans.
In total, she said, there are $14 million in employee obligations as well as $2.5 million in professional fees carved out of the budget for the debtor's legal and business advisers. Werkheiser said at last month's hearing that Art Van had less than $13 million in its accounts, and no new revenue was coming in following the closure of its stores.
A proposal to suspend operations until Art Van could restart going-out-of-business sales and try to revive the going-concern transaction would require more funding than Wells Fargo was willing to provide given current economic circumstances, Wells Fargo said.
With no further chance to use lender collateral to fund operations during a Chapter 11, Art Van said it was forced to seek conversion to the Chapter 7 liquidation.
Art Van is represented by Gregory W. Werkheiser, Michael J. Barrie, Jennifer Hoover, Kevin Capuzzi and John C. Gentile of Benesch Friedlander Coplan & Aronoff LLP, and Marc J. Phillips and Maura I. Russell of Montgomery McCracken Walker & Rhoads LLP.
Secured lender Wells Fargo is represented by J. Cory Falgowski of Burr & Forman LLP, and Marjorie S. Crider, Christopher L. Carter and Jennifer Feldsher of Morgan Lewis & Bockius LLP.
The case is In re: Art Van Furniture LLC et al., case number 1:20-bk-10553, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Vince Sullivan. Editing by Alanna Weissman.
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