How the Coronavirus Put Modell’s Bankruptcy on Hold

Modell’s has succeeded in putting on hold its bankruptcy proceedings after the company’s legal team this week argued that the coronavirus pandemic rendered the retailer unable to carry out its planned Chapter 11 liquidation sales.

In an order filed Friday, bankruptcy court judge Vincent Papalia suspended Modell’s Chapter 11 case through April 30, 2020, at which time a hearing is scheduled to consider, among other things, a further extension of the suspension. (The hearing is set for April 30 at 10 a.m.)

On Tuesday, the New York-based sportswear purveyor filed a motion requesting a 60-day suspension of its Chapter 11 case, arguing that liquidation sales are the “cornerstone” of bankruptcy proceedings. Due to stay-at-home orders that have gone into effect at the state and local level across the country, Modell’s for the time being has ceased liquidation sales; all of its 153 outposts closed as of March 21.

“I want to personally thank Judge Vincent F. Papalia for being so understanding in these most difficult and unprecedented times,” said Modell’s president and CEO Mitchell Modell in response to the court’s decision. “I also appreciate the collaborative efforts of the vendors and landlords in reaching this temporary solution.”

Earlier this week, Modell’s landlord creditors had filed a letter in response to the retailer’s suspension request expressing “serious concerns” about the relief being sought.

“Simply put, it is not appropriate to prevent a creditor from seeking relief from the Court during the suspension period. Creditors cannot predict how COVID-19 events will affect their own situation,” the letter read. The landlords had further asked Modell’s to put together a revised plan by the last week of April.

Per Judge Papalia’s order today, interested parties could file objections to a further extension of Modell’s chapter 11 proceedings on or before April 24, 2020 at 5:00 p.m. Modell’s team has until April 28, 2020 at 5:00 p.m. to file a response to such objections.

“We are extremely pleased to have obtained this first-of-its-kind order for Modell’s given the unprecedented circumstances posed by COVID-19,” said Michael D. Sirota, co-chair of the Bankruptcy & Corporate Restructuring Department at Cole Schotz, which is representing the retailer in its Chapter 11 proceedings. “We are thankful that Judge Vincent F. Papalia extended extraordinary time, effort and considered the extraordinary circumstances in granting the requested relief for the benefit of all parties.”

Modell’s filed bankruptcy on March 11, citing a challenging retail environment. The chain listed the estimated value of its assets of between $10 million and $50 million, compared with estimated liabilities of $100 million to $500 million. It plans to liquidated all stores.

Some of the largest athletic brands are among Modell’s creditors with the biggest unsecured claims. The retailer owes Adidas USA Inc. $8.97 million.; Nike Inc. has an unsecured claim of $8.87 million; and Under Armour is owed $3.86 million.

The Chapter 11 filing followed a series of financial difficulties that Modell’s has faced in recent years. WSJ report in February indicated that the firm had hired financial advisers to help rein in challenges. CEO Mitch Modell told the publication that the company had stopped payments to a number of its landlords and vendors, and had begun negotiations with suppliers to remedy the situation.

Amid the retailer’s challenges, its CEO considered selling a minority stake in the family-owned business. Modell himself loaned the company $6.7 million last year to avoid bankruptcy, and the company was recently forced to sell its Bronx, N.Y., warehouse as it sought the cash needed to stay afloat.

Modell’s is just one of many sporting goods purveyors to succumb to the pressures of an evolving retail environment over the past several years. Grand Rapids, Mich.-based MC Sports filed for Chapter 11 protection in 2017; Sports Chalet announced it would close its doors in April 2016; Sports Authority declared bankruptcy in March 2016; and City Sports went out of business in late 2015.

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