Jurisdiction; Procedure; Litigation
9/11/2009 11:22:03 AM EST
In re Goody's Family Clothing, Inc., 401 B.R. 131 (Bankr. D. Del. 2009)
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The current global financial crisis has seriously impacted retailers and vendors. Struggling with sluggish consumer demand caused by the weak economy and soaring unemployment and reduced access to financing caused by the credit crisis, numerous prominent retailer chains have succumbed to the barren retail landscape and many have filed for bankruptcy, e.g., Circuit City, Mervyn’s, Steve & Barry’s, KB Toys, Linen n’ Things, etc. Goody’s Family Clothing (“Goody’s”) is one such company which has fallen prey to the global financial crisis. Goody’s is a privately held clothing retailer which at the height of its power employed more than 8,000 people and operated a 350-store chain of family apparel retail stores located throughout the U.S. in 21 states. After emerging from bankruptcy in October 2008, Goody’s was forced by weak consumer demand and poor holiday sales to refile for chapter 11 bankruptcy on January 13, 2009 with plans to liquidate its remaining 282 stores.
In a chapter 11 bankruptcy proceeding for a retail chain such as Goody’s, the court may establish a claims deadline or bar date for the filing by the debtor’s suppliers of a pre-petition claim under section 503(b)(9) of the Bankruptcy Code known as a “20-day goods” claim. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 amended the Bankruptcy Code to add section 503(b)(9) with the aim of assisting retail and manufacturing supplier of goods to companies that file for bankruptcy. Bankruptcy Code section 503(b)(9) provides administrative expense status to unpaid suppliers for the value of the goods received by the debtor within 20 days before the date of the commencement of the bankruptcy case. Prior to the 2005 Act, these 20-day goods claims were treated as unsecured claims at the bottom of the claim hierarchy, but since enactment, they have been vaulted to the same priority status of administrative expenses such as rent, payroll, utilities and professional fees which must be paid before the debtor emerges from chapter 11 reorganization. Because creditors that successfully assert a 20 days-goods claim will have an increased likelihood for a fuller and quicker recovery of their claim to the detriment of the debtor that will have to contend with the additional expense, it is likely that increased bankruptcy litigation will result as debtors and creditors clash over the classification of claims under this Code section.
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