Christmas Tree Shops committee seeks conversion of Chapter 11 case

By Sarah Lizee

Olympia, Wash., July 11 – Christmas Tree Shops, LLC’s official committee of unsecured creditors is seeking conversion of the company’s Chapter 11 bankruptcy case to Chapter 7, according to a motion filed Monday with the U.S. Bankruptcy Court for the District of Delaware.

The committee said the cases are administratively insolvent, as admitted by the debtors, who are suffering a “continuing loss to or diminution to the estate” that is detrimental to creditors.

The group said this is evidenced by the debtors’ budget to actual results, revealing repeated revenue misses throughout the post-petition period.

These revenue misses and an inability to balance a budget between post-petition expenses and post-petition revenues, have led to the accruing and unpaid administrative expenses, the committee said.

Motions to compel payment of administrative expenses made by trade vendors and by shippers are both the result and further evidence of the administrative insolvency, the group added.

“Landlords have sought repeatedly to be properly protected for stub rent claims, all to no avail,” the committee said in its motion.

“This substantial and continuing administrative insolvency is grounds for conversion.”

Restore Capital, LLC is a last-out participant in the debtor-in-possession loan with an investment in the DIP of about $4.8 million.

Restore is an affiliate of Hilco, and Hilco is the selected going-out-of-business (GOB) liquidator. Ian Fredericks serves as president of both companies.

“This affiliation creates mixed motives for secured lender Restore, whose affiliate earns a dramatically better return from GOB sales than Restore will on its $4.8 million last out DIP position,” the committee said.

The group said it believes that this affiliation between the DIP lender and liquidator necessitates a higher level of scrutiny with respect to any wind-down/GOB sale budget agreed to by the secured lenders, particularly one that will pay only those administrative expenses that support the GOB sale process, but not remaining administration.

“Thus, given the administrative insolvency, i.e., the continuing loss to or diminution of the estate, coupled with the fact that administrative expenses remain unbudgeted by the liquidating secured lenders, including Hilco's affiliate, Restore, these cases ought to be converted to ensure a fair liquidation process for all creditors,” the committee said.

Middleborough, Mass.-based Christmas Tree Shops sells home goods with a specialty focus on seasonal products. The company filed bankruptcy on May 5 under Chapter 11 case number 23-10576.

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