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CKR Law Obtains Ruling That Liquidator Does Not Require 327(a) Retention in Retail Bankruptcy Case

New York, NY October 2, 2018 - CKR Law LLP (“CKR”) Partners Maura I. Russell, Kristie M. Blase, and Gilbert R. Saydah Jr. have won a Court ruling in the Heritage Home Group Chapter 11 case (“HHG”) that CKR’s client SB360 Capital Partners LLC (“SB360”) is not required to be retained as a “professional” as contemplated by Section 327(a) of the Bankruptcy Code.   SB360 is providing consulting services to the furniture retailer Heritage Home Group LLC and its subsidiaries (the “Debtors”) in connection with the Debtors’ ongoing liquidation sales.  The Office of the United States Trustee objected to the Debtors’ retention of SB360 under Section 363 of the Bankruptcy Code, asserting that SB360, as a liquidator, is a “professional” that must be retained under the stringent standard of Section 327(a) of the Bankruptcy Code.  Section 327(a) retention is typically reserved for attorneys, accountants, appraisers, auctioneers or “other professionals” such as investment bankers, and/or financial advisors that are directly involved in a debtor’s decision-making process, reorganization efforts, and/or estate administration.  SB360 is not providing any such services to the Debtors in the HHG case. The Office of the United States Trustee has objected to the retention of liquidators under Section 363 in HHG and three other retail cases pending in the Bankruptcy Court in Wilmington, Delaware. 

Furniture manufacturer and retailer Heritage Home had filed a motion seeking authority to conduct liquidation sales at its retail store locations and wholesale division, and for authority to retain SB360 via a consulting agreement pursuant to which SB360 would provide specific enumerated services to the company.  CKR attorneys argued that SB360 only makes recommendations on how to conduct sales, not decisions, and that the services that it is providing to the Debtors do not fit the test and factors that Courts look to in determining if a Section 327(a) retention is required.

Following an evidentiary hearing on September 26, 2018, Bankruptcy Judge Kevin Gross, in a well-reasoned decision, was the first of the four Judges to rule on the issue and issued his opinion on September 27, 2018.  Judge Gross agreed with CKR’s arguments on behalf of SB360 and found that “SB360’s responsibilities are clearly advisory and do not constitute an intimate role in the Debtors’ plans,” and therefore SB360 is not required to be retained under Section 327 of the Bankruptcy Code.  Judge Gross approved SB360’s retention by the Debtors as a proper exercise of their business judgment, following testimony from Debtors’ Chief Restructuring Officer and SB360’s General Counsel.  On October 1, 2018, Judge Brendan Shannon issued a similar opinion in the Brookstone bankruptcy case, also pending in Delaware.    

The new and recent position of the U.S. Trustee that all liquidators must be retained under the more stringent test of Section 327(a) of the Bankruptcy Code has disrupted the order of retail bankruptcy cases.  Under these decisions, retailers in Chapter 11 bankruptcies in Delaware will be able to continue to use the services of a liquidating firm to maximize the value of their inventory consistent with how they have done so for decades without the need to conform to the strictures of Section 327(a).   Decisions from the other two Bankruptcy Judges who are being asked to rule on the matter are expected shortly. 

About CKR Law LLP

CKR Law LLP is a global firm of experienced lawyers with diverse international practices. Information about all of CKR’s locations, attorneys and practice areas is available on http://www.ckrlaw.com.

For more information on this ruling and its implication, please contact:

Maura I. Russell at mrussell@ckrlaw.com
Kristie M. Blase at kblase@ckrlaw.com