CH. 11 Rules Stacked Against PacSun'S Reorg

April 7, 2016Article
Law 360

Brian Davidoff was quoted in a story published by Law360 on April 7, 2016, about the challenges retail bankruptcies face under the changes made to the 2005 Bankruptcy Code that set stricter timelines on dealing with landlords and leases.

PacSun, the latest retailer to file for Chapter 11 as a result of a weak general economy and the migration of consumers to online shopping, is looking to quickly reorganize, a task that some say is nearly impossible under the new rules.

When the code was amended in 2005, the new rules gave the debtor only 120 days to decide whether or not to assume or reject a lease without a landlord’s consent. That decision, with one 90­day extension available before it requires a landlord’s written agreement, gave retailers an extremely shortened period of time to make complex, decisions on how to deal with various locations across the country. Prior to the 2005 code, a process called designation was available in which a tenant had time to put together a strategy identifying leases it would like to assume or reject and those that needed further evaluation.

“There’s no timeline to do that anymore,” said Davidoff, chair of Greenberg Glusker’s bankruptcy and financial restructuring group. “You effectively have to make a decision in the first 90 days of the case, and that makes it very difficult for any major retail bankruptcy.”