MC Sports, which filed for Chapter 11 bankruptcy protection on February 4, plans to wind down operations at its headquarters and distribution center starting March 31.
That’s according to a Worker Adjustment and Retraining Notification Act notice filed with the state of Michigan, as reported by Crain’s Detroit Business. The distribution center closure will impact 61 employees in Kentwood, MI.
The note comes as MC Sports earned court approval to hire Tiger Capital Group and Great American Group to conduct going-out-of-business sales at its 66 stores. The company operates 24 stores in Michigan; 11 in Ohio; seven in Indiana; eight in Illinois; seven in Wisconsin; five in Missouri; and four in Iowa.
According to a recent court filing, MC Sports continues on its dual goal of quickly liquidating its stores to maximize the recovery of inventory and other in-store assets for creditors while also seeking a buyer to revive the 71-year old business. Stout Risius & Ross has been retained to help find a buyer of the business as a going concern.
In the filing, MC Sports is asking the U.S. Bankruptcy Court for the Western District Of Michigan to approve a key employee retention plan (KERP) and Key Employee Incentive Plan (KERP) to support the liquidation and wind-down of operations as well as the potential sale.
As part of the KERP request, MC Sports has identified 29 employees – approximately 3 percent of its workforce – whose retention is “necessary throughout the liquidation and wind down process.”
The court notes that the employees “have developed valuable institutional knowledge regarding debtor’s business operations and would be difficult and expensive to replace. Preserving this institutional knowledge is key to maximizing value to debtor’s estate through the liquidation and wind down process.”
Employees will receive a bonus equal to 50 percent of his or her base salary for staying on for a set among of weeks to support the liquidation and wind-down process. Depending on the employee, their jobs would last 10, 14 or 26 weeks. The cost of the proposed KERP will be approximately $275,000.
The KERP is designed to incentive three senior executives – Bruce Ullery, CEO; Rob Summerfield, CFO; and Dan Winchester, COO – for “maximizing recoveries from liquidated assets and minimizing debtor’s expenses during the liquidation.” The bonus will be based on how MC Sports outperforms adjusted net cash flow in its budget during the 26-week wind-down period. Bonuses would be capped at $613,000.
In arguing for the incentive program, MC Sports’ lawyers stated that Ullery, Summerfield and Winchester, “through the executive positions they hold and their many years of experience with the company, will have the greatest impact on the sales process and ultimately the recovery that debtor will realize from the liquidation.”
The filing was blamed on “the rapid migration of sales from traditional brick and mortar retailer to online retailers, the expansion of competing distribution channels and specialty retailers, and changing consumer preferences.” The filing came after discussions broke down over an out-of-court financial restructuring with its vendors and landlords.
MC Sports incurred losses of $5.4 million before taxes on sales of $174.6 million in 2016.
Photo courtesy MC Sports