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Art Van Furniture in ‘Cataclysmic’ Situation, Facing Liquidation

March 31, 2020, 9:22 PM

Art Van Furniture, LLC, forced to halt going-out-of-business sales amid the new coronavirus pandemic, has insufficient cash to meet its obligations, and should decide quickly whether to convert its bankruptcy to a Chapter 7 liquidation, a bankruptcy judge said.

Chief Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware Tuesday ordered the retailer to freeze all spending and tell the court April 3 how much it still owes employees for work performed through the end of March.

Art Van’s slide toward Chapter 7 comes a week after it told the court it had lost its bankruptcy financing and that a deal to sell 44 of its Wolf and Levin brand furniture stores had fallen apart.

The company was forced to shutter its going-out-of-business sales two days after they were approved because of restrictions put in place to contain the spread of Covid-19, the disease caused by the new coronavirus.

A subsequent “agreement in principle” with Wells Fargo Bank N.A. to put the company on “life support mode” until the public health crisis had passed now appears to have unraveled, as Art Van and the bank were unable to work out the details to “mothball” operations, Art Van’s attorney, Gregory W. Werkheiser of Benesch, Friedlander, Coplan & Aronoff LLP, told the court Tuesday.

Art Van wanted cash to pay employee wages, commissions, salaries, and health care obligations, but wouldn’t provide consistent details and the numbers kept changing, Wells Fargo’s attorney, Jennifer Feldsher of Morgan Lewis, told the court.

The situation has become “cataclysmic,” Feldsher said. “The debtor has absolutely no revenue coming in,” and the amounts needed to cover those costs “are far in excess of what the debtors have in cash today,” she said.

As a debtor-in-possession, the company can’t choose to pay employees at the expense of other creditors without a court order, Sontchi told Werkheiser. “You’ve got a fixed amount of money insufficient to meet the company’s obligations,” the judge said.

There are also many customers who have made deposits but never received their furniture, Sam Mirarchi of the Pennsylvania Attorney General’s Office told the court Tuesday.

Landlords also expressed concerns that they weren’t getting rent and were providing “rent-free storage” beginning April 1.

Sontchi scheduled a further hearing on the matter April 3.

The case is Art Van Furniture, LLC, Bankr. D. Del., No. 20-10553, Hearing 3/31/20.

For additional legal resources, visit Bloomberg Law In Focus: Coronavirus.

To contact the reporter on this story: Leslie A. Pappas in Wilmington, Del. at lpappas@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com