A.B.C. Carpet Co., Inc – Seeks Approval of Consultancy Agreement with B. Riley Retail Solutions, Inventory Sales with Significant Consignment Element

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September 13, 2020 – The Debtors filed a motion requesting Court authority to (i) enter into a September 12th Consulting Agreement with B. Riley Retail Solutions, LLC (the “Consultant”) and (ii) begin "clearance and consignment sales" efforts [Docket No. 40].

The motion states "to be clear, the contemplated Sales are not ‘going out of business’, ‘liquidation’ or ‘store closing’ sales;" although any confusion on the part of the consuming public is likely to be tolerated.

The motion insists that the sales effort is dictated by the preferences of the Debtors' prepetition-turned-DIP lender 888 Capital Partners, LLC ("888 Capital") which is also serving as a stalking horse. 888 Capital has built the "proceeds of the Consigned Goods…into the DIP financing budget," obviously with the impact of reducing the Debtors' need for DIP financing.

888 Capital, who will choose a "Monitor" to review consigned goods, will also effectively serve as gatekeeper for those consigned goods; with the contribution of the Debtors' actual inventory to the combined pot of debtor inventory and consigned goods unclear. What is clear is that the Debtors (or rather 888 Capital) are lloking to maximize the takings from two distinct sales efforts, (i) a going concern sale of the Debtors' business and a (ii) the "clearance and consignment sales."

The present motion states, “…888 Capital Partners, LLC (‘888 Capital’), an entity that had expressed an interest in purchasing substantially all of the Debtors’ assets and, in furtherance of this interest, acquired the Debtors’ senior secured credit facility in early August 2021. Those negotiations resulted in agreements, subject to this Court’s approval, of the following: (i) 888 Capital would provide the Debtors with debtor-in-possession financing and access to cash collateral; (ii) the Debtors would pursue a going-concern sale conducted pursuant to section 363 of the Bankruptcy Code, for which 888 Capital would also serve as a stalking horse bidder; (iii) the Debtors would engage a third party to conduct clearance sales of certain of their inventory in the interim; and (iv) the Debtors would take on consignment goods of certain vendors, subject to review of a third-party monitor selected by 888 Capital (the ‘Monitor’) and sell those goods during the bankruptcy in exchange for a portion of the proceeds thereof.

888 Capital has indicated that, should it prevail as the successful bidder in the going-concern sale, it would want the Assets and Consigned Goods (each as defined below) to be sold in the clearance and consignment sales (collectively, the ‘Sales’) prior to the closing on such going-concern sale, and the proceeds of the Consigned Goods are built into the DIP financing budget. The parties, therefore, believe that conducting the Sales described herein represents the most efficient and appropriate means of maximizing value for the Debtors’ estates and stakeholders, as both assist in consummating a going-concern sale of substantially all the Debtors’ assets (addressed by separate motion) and as proceeds of certain Sales are part and parcel of the DIP financing budget”.

Consultancy Agreement

The motion continues, “The Debtors and 888 Capital agreed that the Debtors would engage a third party to assist with the monetization of certain (a) of Debtors’ existing inventory located in the Debtors’ two retail stores located in Manhattan and Brooklyn (the ‘Stores’) and distribution center (the ‘Merchandise’) and (b) Allowed Carpets (as defined in the Consulting Agreement (defined below)) located in the Debtors’ Stores and distribution center (the Merchandise and Allowed Carpets to be sold as part of the Sales are at the discretion of the Debtors, subject to consultation with the Monitor [selected by 888 Capital], and are collectively referred to herein as the ‘Assets’), by means of clearance or other promotional sales. As stated above, the Debtors do not contemplate or request the shuttering of their retail operations or their Stores pursuant to this Motion. Thus, to be clear, the contemplated Sales are not ‘going out of business’, ‘liquidation’ or ‘store closing’ sales.

Subject to entry of the Interim Order, the Debtors, with the assistance of the Consultant, will commence the Sales of the Assets and the Consigned Goods (as discussed below) as soon as possible. The Debtors seek authority to enter into and perform under the Consulting Agreement to allow the Consultant to conduct its work uninterrupted. The Debtors have determined that (a) the services of the Consultant are necessary to maximize the value of the Sales, and (b) the Consultant is capable of performing the required tasks on favorable financial terms.

Entry into, and performance under, the Consulting Agreement will allow theDebtors to utilize the experience and resources of the Consultant in performing the Sales at the Stores in a manner that will allow the Debtors to retain control over the process and that will provide the maximum benefit to the estates. Further, the Debtors, as part of the negotiations relative to successfully obtaining postpetition financing from 888 Capital to fund these Chapter 11 Cases and the going-concern sale, agreed to enter into the Consulting Agreement.”

About the Debtors

According to the Debtors: “abc is a lifestyle brand with a rich legacy in home, hospitality, and wellness known for instilling a sense of wonder and action in our guests. Food, comfort, rest, and ritual are transformed through the lens of personal and planetary well-being into choices that are good for people and even better for the world. What started in the late nineteenth century as a pushcart business selling carpets became one of the largest and most diverse rug and home collections in the world. Since 2003, our demand for consciously made artisanal goods has helped transform the retail landscape."

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