COVID-19 Forces Modell’s to “Mothball” Chapter 11 Efforts
In an ironic bankruptcy twist, the COIVD-19 outbreak is thwarting Modell’s Sporting Goods’ ability to liquidate. Modell’s filed its bankruptcy case on March 11th and announced that it was closing all 134 of its stores. The chain was founded by Morris A. Modell in 1889, with a single store on Cortlandt Street in Manhattan. Modell’s followed in the footsteps of The Sports Authority, Gander Mountain, Eastern Mountain Sports, and other sporting goods retailers who have struggled mightily in recent years, and have landed in Chapter 11. Modell’s intention was to complete all liquidation sales by the end of April. The budgets filed with the bankruptcy court reveal no line item for lease expenses starting in May.
The spread of COVID-19 coupled with the recent imposition of government orders directing the closure of non-essential retailers has rebuffed Modell’s efforts to liquidate. Indeed, on Monday, citing to the COVID-19 outbreak, Modell’s filed an emergent application with the Bankruptcy Court in New Jersey, to suspend its Chapter 11 case. In the application, Modell’s notes that it has “… no choice but to temporarily “mothball” their operations to preserve value, with the hope that…” they can restart operations in the near future in order to liquidate their inventory.
In its emergent filing, Modell’s seeks to cease operations at all 134 of their retail stores as well as fulfillment of orders on their e-commerce site, and to terminate store and distribution center employees. Modell’s has also asked to cease all in-person operations at their corporate headquarters as well as termination of most corporate employees.
Modell’s is hopeful that the requested suspension will provide them with a breathing spell necessary to later implement store closing sales. Where the requested suspension leaves the rights and claims of employees, landlords, trade creditors, and other constituents remains unclear. However, forecasting potential future legal positions, through its filings, Modell’s seeks to reserve rights to argue that obligations accrued during the suspension do not have to be paid based upon force majeure and other applicable legal rights. While Modell’s efforts to suspend its operations during the pandemic overwhelming the nation appear warranted, parties impacted by the chapter 11 case should be diligent in protecting their rights. Modell’s’ was in a liquidation mode prior to COVID-19, and should not use this virus as an excuse to further trample what limited rights its employees, trade vendors, landlords, and other constituents may have.