On April 23, 2023, Bed Bath & Beyond Inc., et al., filed a voluntary petition for Chapter 11 bankruptcy under the United States Bankruptcy Code.  The company was compelled to file after failing to secure funds to maintain operations.  The home goods retailer based in Union, New Jersey filed for protection in New Jersey Bankruptcy Court estimating assets between $1 and $10 Billion.  Last year the company reported losses of $393 million after sales dropped 33%.

Part of its “first-day” motions, the company requests entry of orders authorizing the Debtors to assume the consulting agreements, authorizing, and approving the conduct of store closing sales, with such sales to be free and clear of all liens, claims, and encumbrances, authorizing customary bonuses to employees of closing stores, and other relief.  Furthermore, the Debtors seek authorizations and approval to close 472 stores located across the country. The company estimates that the aggregate net sale proceeds from the remaining brick-and-mortar stores will estimate $718 million dollars.

The company is seeking to retain Hilco Merchant Resources, LLC to conduct the sales. The sale guidelines request that each sale be conducted free and clear of liens, claims, and encumbrances under section 363(f) of the Bankruptcy Code, and that, subject to the Bankruptcy Court’s approval, the company intends to conduct the Store Closings in accordance with the Sale Guidelines. The Sales Guidelines further suggest, to the extent such guidelines conflict with the Liquidation Sale Laws, the Sale Guidelines would control.  The company also seeks a waiver of any contractual restrictions that could otherwise inhibit or prevent the company “from maximizing value for creditors through the Store Closings and Sales.” As a result, the Store Closings and Sales may vary from certain provisions of leases, subleases, or other documents with respect to the premises, including reciprocal easement agreements containing covenants, conditions, and restrictions.  Landlords should consider reviewing the sale guidelines and their leases to determine whether they should object to the procedures.

Under Section 365(a) of the Bankruptcy Code, a debtor may assume or reject any executory contract or unexpired lease of the debtor. Here, the company asserts that uninterrupted and orderly Sales will allow the Debtors to timely reject leases associated with the Closing Stores and avoid the accrual of unnecessary administrative expenses for rent and related costs. In addition, the Debtors request that the Court waives compliance with restrictions in the Debtors’ leases to maximize the value of the estate. Notably, Courts in the District of New Jersey have held that restrictive lease provisions affecting store liquidation sales in Chapter 11 cases are unenforceable.  Moreover, the Debtors seek a waiver of the fourteen-day stay provision under Bankruptcy Rule 6004(h).

The Debtors also filed a motion for entry of an order approving the auction and bidding procedures, approving stalking horse bid protections, scheduling bid deadlines and an auction, approving the form and manner of notice thereof, approving the form APA, and establishing notice and procedures for the assumption and assignment of contracts and leases, authorizing the assumption and assignment of assumed contracts, authorizing the sale of assets, and granting related relief.

The Bidding Procedures: Public Announcement of Auction: upon entry of the Bidding Procedures Order, the Debtors shall serve on the parties that receive notice of the motion, a notice setting forth the date, time, and place of the Auction and the Sale Hearing, and the deadlines and procedures for objecting to the proposed Sale Transaction(s), the Bidding Procedures Order and the Bidding Procedures in the form attached to the Bidding Procedures as Scheduled 1 (the “Auction Notice”), publish the Auction Notice, on one occasion in The New York Times (National Edition) to provide notice to any other potential interested parties, and post the Auction Notice on their case website https://restructuring.ra.kroll.com/bbby. The Auction Notice shall include a complete list and general description of the Assets for sale.

Potential Bidder Qualifications: each potential bidder must deliver to the Debtors an executed confidentiality agreement, sufficient information that the potential bidder has or can reasonably obtain the financial capacity to close a purchase of any portion, all, or substantially all of the Debtors’ Assets, the adequacy of which must be acceptable to the Debtors, in consultation with the Consultation Parties, and a statement detailing whether the potential bidder is partnering with or otherwise working with any other interested party in connection with the potential submission of a joint bid, the identity of any such party or parties, and a concise description of the nature of such partnership or joint bid to the extent reasonably practicable.

Qualified Bid Requirements: After submitting the necessary and acceptable documentation as an acceptable bidder, the bidder must submit to the Debtors and their advisors an irrevocable offer for the purchase of some or all of the Assets, meeting the criteria set forth in the Bidding Procedures prior to the bid deadline.

Stalking Horse Bid Protections: In the event the Debtors receive one or more Qualified Bids, at any time until May 22, 2023, at 5:00 pm (Eastern Standard Time), the Debtors shall be authorized to exercise reasonable business judgment to select one or more Acceptable Bidders to act as the stalking horse bidder in connection with the Auction for such Assets.

Proposed Sale Schedule:

• Stalking Horse Deadline – the deadline by which the Debtors may choose a Stalking Horse Bidder – May 22, 2023, at 5:00 pm (EST).
• Bid Deadline – the deadline by which all binding bids must be actually received pursuant to the bidding procedures – May 28, 2023, at 12:00 pm (EST).
• Auction – the date and time of the auction, if one is needed, which will be held at the offices of Kirkland & Ellis, LLP, 601 Lexington Avenue, New York, New York 10022 – June 2, 2023, at 10:00 am (EST).
• Notice of Successful Bidder – as soon as reasonably practicable after the conclusion of the Auction, the Debtors will file on the docket a notice identifying the Successful Bidder.
• Sale Hearing – the hearing before the Court to consider approval of the Winning Bid(s), pursuant to which the Debtors and the Successful Bidder(s) will consummate the sale – June 7, 2023, at 11:00 am (EST) or as soon thereafter as the Debtors may be heard.

Creditors and parties interested in bidding for assets should consult with legal counsel.