Bankruptcy Courts Address Impact of COVID-19 Coronavirus With Unique Orders

As courts across the country deal with scaled back operations due to the COVID-19 pandemic, bankruptcy courts in New Jersey and Delaware have issued novel orders to address the impact of the virus on certain debtors.  Last month, debtors in the chapter 11 bankruptcy cases of Modell’s Sporting Goods, Inc. and CraftWorks Parent, LLC each sought and obtained court orders suspending certain case activity which, for all intents and purposes “mothballed” the cases for a certain period of time.

In In re Modell’s Sporting Goods, Inc., et al., citing to his authority under sections 105(a) and 305 of the Bankruptcy Code, Judge Papalia of the United States Bankruptcy Court for the District of New Jersey, authorized the debtors to (1) cease in-store and online sales, (2) layoff all distribution center and store-level employees, and (3) layoff a majority of their corporate employees.  The court also suspended all hearings and deadlines in the debtors’ chapter 11 bankruptcy cases until at least a hearing scheduled for April 30, 2020 (objecting parties seeking to contest any further extensions are required to file objections by April 24) permitting the debtors to seek a further extension of that date at a hearing scheduled for April 30 which objecting parties are required to contest by April 24.¹

In In re CraftWorks Parent, LLC, et al., Judge Shannon of the United States Bankruptcy Court for the District of Delaware similarly approved  temporary case management procedures designed to decrease the costs to the debtors of managing their estates and otherwise easing administrative burdens. Such procedures include (1) permitting the debtors to reject executory contracts and unexpired leases via email (with commensurate objections also permitted via email), (2) encouraging parties wishing to lift the automatic stay to first contact the debtors to seek a consensual resolution (and, in any event, delaying any hearings on non-urgent lift stay motions until at least April 30, 2020), (3) encouraging the debtors and other parties in interest to address outstanding disputes via stipulation, and (4) otherwise requiring that all hearings be held telephonically until further order of the court.²

While such orders have not yet led to a flurry of similar requests from other debtors, they do demonstrate the willingness of bankruptcy courts to grant exceptional relief when warranted in these unprecedented times.

¹ Order Temporarily Suspending the Debtors’ Ch. 11 Cases Pursuant to 11 U.S.C. §§ 105 and 305, ¶ 3(a), In re Modell’s Sporting Goods, Inc., et al., Case No. 20-14179 (Bankr. D.N.J., Mar. 27, 2020).

² Order (I) Establishing Temporary Procedures and (II) Granting Related Relief, In re CraftWorks Parent, LLC, et al., Case No. 20-10475 (Bankr. D. Del., Mar. 30, 2020).