Retail and Restaurant Bankruptcies: Current Issues for Debtors, Landlords, and Vendors

Description

Retailers and restaurants are filing bankruptcy at an alarming rate that is expected to continue. The 2020 pandemic has exponentially accelerated, changing consumer preferences toward online shopping and food delivery services. Government mandates and shutdowns have altered the conventional analysis. Counsel for debtor retailers must, before filing for bankruptcy, take into account how quickly certain decisions about the assumption or rejection of leases must be made--only 210 days--and how quickly lenders will demand a plan--90 to 120 days--or threaten liquidation.

But courts and debtors have been quick with novel remedies to these unprecedented matters. Courts have "suspended" some cases and prohibited payment of all but the essential expenses. At least one court has abated rent due to the ongoing pandemic.

Still, retailers must decide whether to continue to honor gift cards, loyalty program points, and other customer incentives post-petition, subject to many restrictions and conditions. Retailers must also factor in consignment arrangements where a vendor has delivered goods but retains title pending sale to a third party. Also, vendors often assert that their claims have priority under Section 503(b)(9) of the Bankruptcy Code.

Similarly, large restaurant chains often seek to reject unprofitable leases under Section 365(a). In contrast, other restaurant owners aim to keep existing leases post-petition by requesting an extension for performance for up to 60 days under Section 365(d)(3). All parties must consider the effect of trusts under the Perishable Agricultural Commodities (PACA) and Packers and Stockyards (PSA) Acts.

Whether the debtor is a franchisee or franchisor, bankruptcy affords many options to resolve franchise agreement assignment and intellectual property issues. In this context, savvy counsel must carefully advise clients on clearly presenting information about assets, liabilities, and other financial affairs while strategically negotiating with significant stakeholders.

Listen as our authoritative panel discusses how to best guide retail or restaurant clients through a bankruptcy proceeding, all while deploying every available tool to maximize the value of inventory and assets, protect the client's equity, and preserve long term customer goodwill.