IN VERITAS – The BayneLaw Advantage

Creditors face minimal recovery in sports retailer’s Chapter 11

On Behalf of | Oct 19, 2020 | Corporate Finance, Credit & Bankruptcy |

Whether it is a business or personal bankruptcy in New Jersey, it is often viewed from the perspective of the person or entity who is seeking protection. For example, if a Chapter 7 or Chapter 13 personal bankruptcy is in progress or a business files for Chapter 11, the creditors are frequently categorized as secondary.

However, many creditors are not large banks, lenders or companies. They might be smaller contractors or vendors who will face financial challenges of their own if they cannot recover payment due to a bankruptcy. Just as individuals or businesses filing for bankruptcy need legal help, so too do creditors.

Sporting goods retailer’s bankruptcy may harm stakeholders

A Chapter 11 bankruptcy filing by Modell’s Sporting Goods Inc. may be problematic to many businesses and individuals to whom the company owes payment. The company’s plan will leave trade vendors and other unsecured creditors with the opportunity to recover less than 1% of what they claim to be owed.

The company had set out to liquidate its stores and sought strategies to revive it if possible. The current health situation hindered them in their goal. The liquidation was unable to go forward.

The company planned to pay nearly $5 million in administrative claims. Those who had secured claims and priority claims were expected to recover in full. There were more than $100 million in claims against the retailer. Many were vendors and property owners. There was a loan of nearly $7 million from the company’s owner to help with liquidity. This is also unsecured.

Various retail issues led to the company’s decline and apparent downfall including competition from online retailers, environmental realities and the health crisis.

Creditors can seek help with trying to collect during a bankruptcy

When debtors seek bankruptcy relief, this can negatively impact those who are owed money. The idea that a large company filing for bankruptcy will only lead to a minimal loss to lenders is a misconception. Any vendor or contractor can be damaged in these circumstances. This is especially true for smaller entities who might get caught up in a large company’s Chapter 11. Having legal assistance from a firm experienced in corporate finance and creditors’ rights can be imperative.