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Law360 (August 17, 2020, 5:53 PM EDT) -- A North American affiliate of temporary office-space rental company Regus Corp. filed for Chapter 11 protection Monday in Delaware, saying the global shift to work-from-home business models in response to the COVID-19 outbreak has eaten into demand for its facilities.
In initial case filings, RGN-Group Holdings LLC said that several other affiliates had filed their own petitions in recent weeks as lease obligations owed to landlords at its office facilities across the country came due and the enterprise didn't have the cash to make the payments due to the pandemic-related loss of revenue.
"With the near universal adoption of work-from-home policies, either voluntary, or government-mandated, by U.S. businesses during the early months of the pandemic, demand for temporary office space has been depressed, which I understand resulted in lower occupancy rates than were anticipated when the company decided to make certain investments in the centers," James S. Feltman of financial advisory firm Duff & Phelps said in a first-day declaration.
The company operates its temporary office-space centers at more than 100 locations in the United States and Canada, leasing the space from landlords and then renting it out to occupants for their individual needs, according to the declaration. Due to the general troubles in the global economy over the past few months, Feltman said, many customers were unable to make their contractual payments, further worsening the financial situation facing the company.
RGN-Group Holdings intends to use the Chapter 11 process to obtain a breathing spell from its landlords' collection efforts to negotiate new lease terms and to protect its occupants from the disruption to their businesses if their office-space centers get closed, Feltman said.
RGN-Group Holdings owes its parent Regus Corp. $427 million in the form of working capital loans it uses to acquire the furniture, fixtures and equipment to furnish the company's office space, according to the declaration. RGN-Group Holdings then leases those materials — valued at nearly $1 billion — to the various lease-holding affiliates, some of which are debtors in their own cases filed over the last three weeks in Delaware.
The lease-holding debtors have about $1.1 million in unpaid and overdue lease obligations owed to landlords, the declaration said. Those entities also owe $947,000 to RGN-Group Holdings for the furniture and fixture leases.
RGN-Group Holdings is asking the court to jointly administer all of those cases as small business proceedings under Subchapter V of Chapter 11.
Representatives for the debtors could not immediately be reached Monday for comment.
A virtual hearing on first-day motions for relief is scheduled for 9 a.m. Tuesday before U.S. Bankruptcy Judge Brendan L. Shannon.
The debtors are represented by James F. Conlan, Mike T. Gustafson, Ian J. Bambrick, Patrick A. Jackson and Jay Jaffe of Faegre Drinker Biddle & Reath LLP.
The lead case is In re: RGN-Group Holdings LLC, case number 20-11961, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Jack Karp.
For a reprint of this article, please contact reprints@law360.com.
