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Pier 1 Bankruptcy Court Abates Payment of Post-petition Rent due to Pandemic

Like other national retailers, Pier 1 Imports filed for bankruptcy in March, hoping to sell its assets and to liquidate under-performing locations. Then the Covid19 Pandemic hit the U.S. with its full force, causing mandatory stay at home orders in a majority of the States. It was just a matter of time before the Pandemic started to impact the ebb and flow of large bankruptcy cases. In the case of Pier 1, in-store sales compared to the prior year fell approximately 65% for stores that were to remain open and approximately 55% for the stores that were closing. Faced with am unanticipated cash crunch, Pier 1 sought and obtained orders from the Bankruptcy Court that permitted the accrual of post-petition rent obligations at certain locations, instead of the current payment thereof. This relief was granted and recently extended to the end of May despite the objection of landlords, who argued the Debtor had to perform all of its obligations under the leases pursuant to section 365(d)(3), including the obligation to pay rent on an as incurred basis. In rejecting this construction of section 365(d)(3), the Bankruptcy Court reasoned that “section 365(d)(3) does not give the Lessors a right to compel payment from the Debtors in accordance with the terms of the underlying leases. Rather, to the extent that the Debtors are obligated to pay rent and fail to timely pay such rent, the Lessors are entitled to an administrative expense claim. Administrative expense claims under sections 507(a)(2) and 503(b) of the Bankruptcy Code, such as post-petition date unpaid rent, must be paid “on the effective date of [a] plan . . . [in] cash equal to the allowed amount of such claim. 11 U.S.C. § 1129(a)(9)(A); see also In re Circuit City Stores, Inc., 447 B.R. at 511. As such, any allowed claims for accrued but unpaid post-Petition Date rent must be paid by the Debtors on the effective date of any plan confirmed in these Bankruptcy Cases. To compel payment by the Debtors now would be to elevate payment of rent to the Lessors to superpriority status…” The question is whether the Pier 1 holding will become the new normal in bankruptcy cases and how aggressively will landlords fight the issue, particularly when the market for re-leasing the space is compromised due to the depressed retail environment. Read More
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New Mexico Court Orders SBA to Make PPP Funds Available to Chapter 11 Debtor

Today the Bankruptcy Court in New Mexico (In re Roman Catholic Church of the Archdiocese of Santa Fe, 18-13027 (Bankr. D. N.M.) ordered the SBA to make PPP funds available to a chapter 11 debtor and stated that if the debtor does not get the funds, the court will entertain an adversary proceeding against the SBA for compensatory and punitive damages. The decision from the New Mexico court comes on the heels of a contrary decision in the Cosi bankruptcy case earlier this week, when the Delaware bankruptcy court ruled that it could not force the SBA to make PPP funds available to a chapter 11 debtor.   Some of the specific findings of the New Mexico Court include: “The Court finds that Defendant’s decision to exclude bankruptcy debtors from the PPP is arbitrary and capricious. While a borrower’s bankruptcy status clearly is relevant for a normal loan program, the PPP is the opposite of that. It is not a loan program at all. It is a grant or support program. The statute’s eligibility requirements do not include creditworthiness. Quite the contrary, the CARES Act makes PPP money available regardless of financial distress. Financial distress is presumed. Given the effect of the lockdown, many, perhaps most, applicants would not be able to repay their PPP loans. They don’t have to, because the “loans” are really grants. Repayment is not a significant part of the program. That is why Congress did not include creditworthiness as a requirement. Defendant’s inexplicable and highhanded decision to rewrite the PPP’s eligibility requirements in this way was arbitrary and capricious, beyond its statutory authority, and in violation of 11 U.S.C. § 525(a). By a separate final judgment, the Court will grant Plaintiff the relief it requests. If Defendant’s actions result in Plaintiff not obtaining the $900,000 it requested, Plaintiff may file an adversary proceeding for compensatory and, if appropriate, punitive damages. Read More
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Are CARES Act Payments Exempt ?

Under the heading of “one hand giveth and one hand taketh away”, attorneys have mused about the possibility that creditors could garnish payments to individuals and corporations that receive benefits under the CARES Act. This concern is particularly acute for individuals who receive the one-time payment through a bank account that is subject to garnishment or attachment. The issue seems to have made the radar of state authorities, who are seeking some sort of remedy from the Treasury Department. Query if this is the wrong approach inasmuch as the states could exempt these payments. For further information, check out … Law360 (April 13, 2020, 7:31 PM EDT) — Attorneys general from California, New York and a slew of other states called on the Treasury Department to ensure debt collectors can’t get their hands on the stimulus checks the federal government is giving out to help U.S. residents weather the coronavirus pandemicRead more at: https://lnkd.in/e8mFiiA Read More
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