Despite planning to close all of its 281 stores in 30 states from Florida to California, Stein Mart Inc. filed for bankruptcy protection under Chapter 11, which often is reorganization, rather than Chapter 7 liquidation.
That decision was made to ensure the doomed department store chain can cover as much of its outstanding debt as possible, according to Stein Mart’s lead attorney in the bankruptcy.
“Chapter 11 provides the most efficient and cost-effective method for liquidating a large retailer in order to repay creditors,” said Gardner Davis, partner and bankruptcy specialist in the Foley & Lardner law firm’s Jacksonville office.
Attorney Stephen Busey, chairman of the Smith Hulsey & Busey law firm, is representing Wells Fargo & Co., Stein Mart’s largest secured creditor.
He said the reorganization format was chosen because liquidating Stein Mart is a complex process.
Five liquidators are helping Stein Mart dispose of its store inventory and other assets. The Gordon Brothers consulting firm has a secured lien on Stein Mart’s intellectual property, Busey said.
Busey represented the Jacksonville-based Charter Co. when it filed for Chapter 11 in April 1984.
Busey also represented Winn-Dixie Stores Inc. when the supermarket chain filed for protection under Chapter 11 in February 2005. It closed more than 350 of its about 800 stores before emerging from bankruptcy in November 2006.
Busey said that was the most substantial Jacksonville-based bankruptcy before Stein Mart.
“Winn-Dixie was my last big case. Stein Mart pales by comparison,” Busey said.
Davis and Busey agree that Stein Mart should be able to liquidate its inventory in about 10 weeks. The going-out-of-business sales should yield about $250 million for the secured creditors, according to documents filed with the court.
Busey said the largest group of unsecured creditors likely will be Stein Mart’s commercial landlords, with the stores vacating locations without meeting the full terms of lease agreements.
Stein Mart filed for Chapter 11 on Aug. 12 in the U.S. Bankruptcy Court Middle District of Florida Jacksonville Division. The case was assigned to U.S. Bankruptcy Judge Jerry Funk.
The first hearing for Stein Mart was held Aug. 14 at the Bryan Simpson U.S. Courthouse with Busey and Davis appearing for their clients in person when the liquidators’ contracts were approved, Busey said.
He said the remainder of the proceedings and negotiations with creditors probably will be conducted by teleconference.
Davis said the remote litigation required because of COVID-19 and social distancing won’t hinder Stein Mart’s liquidation.
“This is an important bankruptcy for the Jacksonville community. The local bankruptcy court and the bankruptcy clerk’s office have done a wonderful job to make the process as smooth and transparent as possible.”