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Modell’s to ‘Mothball’ Bankruptcy Case During Virus Shutdown

March 24, 2020, 4:37 PM

Modell’s Sporting Goods Inc. is seeking the “extraordinary remedy” of suspending its bankruptcy case because the new coronavirus pandemic has shut its stores and halted going-out-of-business sales.

Modell’s is seeking a temporary suspension of up to 60 days for all deadlines and activities in its Chapter 11 case in an emergency motion filed Monday in the U.S. Bankruptcy Court for the District of New Jersey.

The suspension will allow the company to avoid incurring unnecessary administrative costs and professionals’ fees while the company is unable to pursue liquidation, Modell’s said.

The “cornerstone” of Modell’s bankruptcy was the liquidation of all 134 of its sporting goods stores located in 10 states and the District of Columbia, the company said. But its “social and ethical duties to promote social distancing"—as well as government orders in some areas—required it to stop those sales during the current health crisis.

Modell’s is asking the court to approve an “operational suspension” of all business at its stores and online orders.

Modell’s said it made the “difficult decision” to dismiss the majority of its employees—without severance—including in all retail stores and its corporate offices. The company will retain only “critical employees” in human resources, finance, and infrastructure technology, so that it can resume liquidating at the end of the case suspension, it said.

The company wants the court to extend all filing deadlines for 21 days from the end of the suspension and to allow it to defer paying its expenses. Modell’s also is seeking an order keeping in place the automatic bankruptcy stay that prohibits anyone from taking any action to collect on a debt during the case.

Modell’s also is seeking to continue using cash collateral—money that is subject to a secured creditor’s liens—while operating on a modified budget already approved by the court.

The company said it hopes it can rehire its terminated employees to conduct the liquidation sales when it’s safe to reopen the stores to the public and resume operations. It plans to use the liquidation sale proceeds to pay creditors and fund a full wind-down.

Modell’s filed Chapter 11 March 11, at the time intending to liquidate and close its stores by the end of April. The bankruptcy court March 13 authorized the going-out-of-business sales, but “in the past week and a half, the Debtors’ situation has changed drastically as a result of COVID-19,” it said.

The case is In re Modell’s Sporting Goods, Inc., Bankr. D.N.J., No. 20-14179, Emergency Motion 3/23/20.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

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

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