Mintz Represents The Paper Store in Chapter 11 Case, Avoiding Store Closures & Layoffs

The Situation

The Paper Store was an iconic American success story. It started as a small, family-run paper stand in a rural town in Massachusetts. Through hard work and business acumen, the family eventually grew the company into a prosperous, 86-store specialty gift and retail chain operating across seven states with approximately 2,000 employees.

Unfortunately, without warning, in March 2020, the nationwide COVID-19 shutdowns devastated the company’s revenues almost overnight. The Paper Store, through no fault of its own, suddenly faced the prospect of running out of cash by September and the likelihood of a fire-sale liquidation. A once financially healthy enterprise faced the prospect of shuttering all of its stores and laying off all 2,000 employees during the height of the pandemic. 

The company turned to Mintz in mid-June 2020, only 75 days before it would run out of cash, to try to save the business and the jobs.

The Approach

The Mintz team quickly devised a strategy by which it identified a landlord that had significant rent obligations at stake and the necessary capital resources to invest.  The team then married that stake holder with the founding family who could bring the required operational and institutional knowledge to bear for a long-term solution.

On July 14, 2020, The Paper Store filed Chapter 11 bankruptcy with $100 million of institutional secured debt and unsecured vendor obligations. Immediately after the filing, in the space of less than three weeks, Mintz attorneys negotiated all of the necessary capital and corporate agreements with the landlord and the founders, and prepared numerous bankruptcy pleadings that would be required to request the Bankruptcy Court’s approval to transfer the debtor’s assets to the new investor group, free and clear of the company’s secured debt and trade debt.

Given the company’s dire cash flow, Mintz also asked the Court to turbocharge the timing of the process so that it could be completed within 45 days of the Chapter 11 filing — avoiding the need to abruptly shutter the business and convert the case to a Chapter 7 liquidation.   

The Outcome

Using a so-called Bankruptcy Code Section 363 sale process, and after defeating numerous objections, Mintz obtained the approval of the Bankruptcy Court to transfer the company as a going concern on September 1, 2020 to the new investor group comprised of the landlord and the founding family. The transfer allowed all of the company’s stores to remain open and continue operations without interruption, including the retention of all employees. In effect, the existing equity-operators emerged as equity-operators of the same company — debt-free — with the blessing of the Bankruptcy Court. 

Once the sale was fully implemented, Mintz, on behalf of the remaining debtor, successfully moved to implement a process known as a “structured dismissal.” This solution allowed a bankruptcy dividend to be distributed to unsecured creditors at a fraction of the cost and months sooner than would have been possible through a more time-consuming and expensive procedure involving a bankruptcy plan of liquidation.