A New Jersey bankruptcy judge extended the suspension of the bankruptcy case of Modell’s Sporting Goods under May 31 as COVID-19 continues to prevent the retailer from holding liquidation sales at physical stores.
Modell’s filed for Chapter 11 bankruptcy on March 11 and was in the midst of closing its 134 stores when lockdown from COVID-19 restrictions temporarily shuttered stores to prevent going-out-of-business sales. In late March, bankruptcy proceedings were suspended the end of April.
In mid-April, the retailer asked the U.S. Bankruptcy Court in Newark, N.J. for an extension until May 30 as social distancing and shelter-in-place orders “continue to prevent the debtors from conducting retail sales at their various locations.”
The suspension, in part, means that Modell’s won’t have to pay April rent to landlords. The rent totals $7 million a month and lawyers representing dozens of landlords filed objections to the extension request.
In their objections, lawyers cited the 60-day limit on rent deferrals during suspensions that’s standard in bankruptcy cases. According to the Wall Street Journal, lawyers representing landlords argued that the suspension only benefits lenders, Modell’s is only using the locations as “free storage,” and their excess exposure as landlords will now have missed both March and April rent payments.
Judge Vincent Papalia, according to Law360, argued that Modell’s doesn’t have funds to cover rent and cited the extraordinary circumstances due to the pandemic.
“We haven’t dealt with a pandemic in our lifetime,” the judge said. “There’s no guidebook, there’s no precedent that I’m aware of or that’s been provided to me.”
The judge also ordered mediation between Modell’s, its lenders and landlords on how to resolve the dispute over how rent payments should be treated once liquidation sales in stores can re-start.
Photo courtesy Modell’s
