By Rose Krebs

Law360 (April 24, 2020, 5:15 PM EDT) -- Home furnishing retailer Art Van Furniture LLC's Chapter 7 trustee told the Delaware bankruptcy court Thursday that a bid by landlords to evict the debtors from stores should be denied so the "orderly" liquidation of assets can continue.

In an objection filed with U.S. Bankruptcy Judge Christopher S. Sontchi, counsel for Chapter 7 trustee Alfred T. Giuliano said a group of landlords has yet to show that Art Van does not have equity interest in leases or personal property at the stores, and thus, their bid to lift a stay so they can evict the debtors and sell remaining property should be denied.

"Despite the recent conversion of these cases to chapter 7 and the COVID-19 pandemic that has brought this country to a halt, the landlords are moving forward with their motion and seek immediate relief from the automatic stay to evict the debtors from the premises and sell any assets remaining on the premises," the objection said.

The trustee argued that he must "be provided an opportunity to conduct an orderly going out of business sale utilizing the debtors' store locations and distribution centers."

In the filing, the trustee asserted he "cannot do this if landlords are provided stay relief to terminate their leases and dispose of the debtors' assets."

Also, in another filing late Friday, the trustee asked the court for approval to delay certain rental payments until at least June 6, saying the bankruptcy estate will likely not have enough funds to pay rent that will be due May 1 since the public health crisis has halted going-out-of-business sales.

"In light of the unfortunate timing of when the cases converted to chapter 7, the trustee is left to run these cases much like a corporate retail debtor liquidating in chapter 11, except he will be operating the business in an uncertain and unpredictable time," Friday's filing said.

The trustee asserted the way to "maximize the value of the debtors' assets is to 'mothball' the debtors' business operations through May 31, 2020, and then commence a going out of business sale, which is expected to last through August 31, 2020."

Once proceeds start coming in from the sales, rent can be paid, the trustee said.

Earlier this month, the four landlords filed a motion with the court seeking that an automatic stay put in place when the Chapter 11 was filed be lifted so "they may proceed with all state law remedies to recover, as needed, the four premises, lease or sell the four premises, and dispose of any property remaining at the four premises."

The landlords — South Lindbergh Property LLC, JS Westflo LLC, Rothman-O'Fallon LLC and O'Fallon Missouri Properties LLC — contend that Art Van has no equity interest in the locations, has already turned over the keys and vacated the stores, and failed to make lease payments in March and April.

Thus, the landlords argued Art Van has "breached each of the leases or at a minimum committed an anticipatory breach of each lease," and they should be able to sell off assets that remain at the stores.

However, the trustee countered Thursday that the leases "have not been rejected, the trustee's time for performance has not lapsed, and the trustee is in the process of developing an orderly liquidation process with its professionals to maximize the value of the debtors' assets for the benefit of all creditors."

Also, the trustee said he is "negotiating a consensual budget ... that will provide sufficient funds to pay post-conversion date rent obligations in full."

Earlier this month, citing a "parade of unfortunate events," Judge Sontchi approved the conversion of Art Van's bankruptcy to a Chapter 7 liquidation after the COVID-19 pandemic wreaked havoc on its Chapter 11 sale plans.

Judge 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.

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.

Art Van previously 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 March 19 due to the state orders.

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.

Counsel for Art Van declined to comment Friday.

Counsel for the Chapter 7 trustee and landlords did not immediately respond to requests for comment Friday.

Art Van is represented by Gregory W. Werkheiser, Michael J. Barrie, Jennifer Hoover, Kevin Capuzzi and John C. Gentile of Benesch Friedlander Coplan & Aronoff, and Marc J. Phillips and Maura I. Russell of Montgomery McCracken Walker & Rhoads LLP.

The Chapter 7 trustee is represented by Bradford J. Sandler, Jeffrey W. Dulberg, Jason H. Rosell and Colin R. Robinson of Pachulski Stang Ziehl & Jones LLP.

The landlords are represented by GianClaudio Finizio of Bayard PA and Randall F. Scherck of Greensfelder Hemker & Gale PC.

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 Abbie Sarfo.

Update: This story has been updated with information about the trustee's Friday filing.

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