Modell's Pushes To Freeze Ch. 11 Case Because Of COVID-19

Law360 (March 24, 2020, 10:58 AM EDT) -- Modell’s Sporting Goods asked a New Jersey bankruptcy judge Tuesday for up to a 60-day suspension in its Chapter 11 case, saying the COVID-19 pandemic has made it impossible to conduct going-out-of-business sales at its locations.

The sporting goods chain asked the court to allow it to “mothball” its operations and defer payments of all nonessential expenses until coronavirus restrictions lift and it can conduct the liquidation sales it says are the “cornerstone” of its case.

“The debtors, along with their professionals, have developed a plan to reoperationalize after COVID-19 abates and believe that the breathing spell provided by the bankruptcy suspension is in the best interests of their estates and all creditors as it will allow the debtors, in time, to maximize the value of their inventory and leasehold interests,” Modell's said.

The company, which operates 153 sporting goods stores, filed for bankruptcy on March 11, citing both the general challenges brick-and-mortar retailers have faced from online competition and more specific issues, such as warm winters reducing sales of cold-weather products and local sports team performances depressing the sales of licensed goods over the past two years.

It said it had $43.4 million in secured debt and more than $100 million in unsecured claims, and that its pension fund is underfunded by about $25.8 million.

At the first-day hearing for the case two weeks ago, landlords for some of the store locations expressed concern the mounting COVID-19 situation would keep customers away from the liquidation sales and that the company would not be able to meet administrative expenses.

Since that hearing, the governments of most of the states Modell's operates in have ordered the closure of all nonessential businesses, preventing it from conducting the “robust liquidation sales” it had hoped for, the company said in Tuesday’s motion.

As a result, Modells said it has instituted a plan to end all operations of its stores and e-commerce site, terminating all store-level and nearly all corporate-level employees without severance. Cash collateral will be used to continue to pay “certain critical” employees, utilities, insurance and taxes until the stores can reopen.

“The modified budget and the operational suspension were designed to enable the debtors to pay essential expenses so that the debtors can reoperationalize and complete the store closing sales as economically and efficiently as possible,” it said.

On Tuesday, U.S. Bankruptcy Court Judge Vincent F. Papalia approved Modell’s request for an emergency hearing on its motion, scheduling it for Wednesday.

Counsel for Modell’s did not immediately respond to requests for comment Tuesday.

Modell's is represented by Michael D. Sirota, David M. Bass and Felice R. Yudkin of Cole Schotz PC.

The case is In re: Modell's Sporting Goods Inc., case number 20-14179-VFP, in U.S. Bankruptcy Court for the District of New Jersey.

--Editing by Marygrace Murphy.

Update: This story has been updated with additional information.

For a reprint of this article, please contact reprints@law360.com.

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