Case MFW Doc 773 Filed 09/28/15 Page 2 of 27. Preliminary Statement

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1 Case MFW Doc 773 Filed 09/28/15 Page 1 of 27 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: CACHÉ, INC., et al., 1 Debtors. ) ) ) ) ) Chapter 11 Case No (MFW) (Jointly Administered) Objection Deadline: October 14, 2015 at 4:00 p.m. (prevailing Eastern time) Hearing Date: October 19, 2015 at 2:00 p.m. (prevailing Eastern time) DEBTORS MOTION PURSUANT TO 11 U.S.C. 105(a), 349, 554(a) AND 1112(b) FOR ENTRY OF AN ORDER: (I) DISMISSING THE DEBTORS CASES (II) AUTHORIZING THE DESTRUCTION, ABANDONMENT, OR OTHER DISPOSAL OF REMAINING RECORDS AND DOCUMENTS AND (III) GRANTING RELATED RELIEF The above-captioned debtors and debtors in possession (the Debtors ) hereby file this motion (the Motion ) requesting entry of an order (the Dismissal Order ), pursuant to sections 105(a), 349, 554(a) and 1112(b) of title 11 of the United States Code (the Bankruptcy Code ): (i) dismissing the Debtors chapter 11 cases as requested herein; (ii) authorizing the destruction, abandonment, or other disposal of all remaining documents and records, including documents relating to employee and former employee personnel records, historical sales transaction data and register transaction receipts (including all electronic records) (the Remaining Documents ) following the completion of any pending discovery requests with respect to any subpoenas served on the Debtors; and (iii) granting related relief. In support of the Motion, the Debtors respectfully state the following: 1 The Debtors, together with the last four digits of each Debtor s tax identification number, are: Caché, Inc. (8181); Caché of Las Vegas, Inc. (9821); and Caché of Virginia, Inc. (9725). The service address for each of the Debtors is 256 W. 38th Street, New York, NY DOCS_SF: /001

2 Case MFW Doc 773 Filed 09/28/15 Page 2 of 27 Preliminary Statement 1. The Debtors believe that the structured dismissal of their chapter 11 cases through the implementation of the distribution procedures contemplated under this Motion will maximize distributions to the holders of allowed administrative claims as well as to the holders of unpaid employee health care claims. The Motion provides a waterfall distribution of the Debtors remaining assets that would: (1) satisfy the outstanding superpriority claim of Great American Group, WG LLC (the Agent or GA ), the purchaser of substantially all of the Debtors assets sold during the going out of business sales conducted at the Debtors former stores earlier this year; (2) provide a contribution by GA of $200,000 from the proceeds of the going out of business sales (otherwise payable to GA) for payment of the unpaid health care claims of the Debtors former employees; (3) limit payment of all professional fees and expenses to the amounts set forth in the professional fee escrow account under the existing debtor in possession financing order (resulting in the nonpayment of a substantial amount of the fees and expenses of the estate s major professionals who incurred fees and expenses in excess of the professional escrow amount); and (4) provide for the Debtors remaining assets to be used for the payment of all other timely filed administrative expense claims (except for claims arising under 11 U.S.C. 503(b)(9) and postpetition stub rent claims of landlords which claims are being satisfied pursuant to a previously agreed settlement) (the Remaining Administrative Claims ). 2. Following the dismissal, the Debtors, under the direction of the Debtors Chief Restructuring Officer, would open an account for the benefit of the Remaining Administrative Claims (the Disbursement Account ), and will also be responsible for administrating, determining validity of claims, and ultimately, making distributions on account DOCS_SF: /001 2

3 Case MFW Doc 773 Filed 09/28/15 Page 3 of 27 of the Remaining Administrative Claims. The employee health claims would be processed and paid pursuant to a protocol jointly developed by the Debtors and Aetna Life Insurance Company ( Aetna ) described in greater detail below. In addition, the Motion seeks authority for the Debtors to destroy the Remaining Documents, provided however that the Debtors will not destroy any Remaining Documents until they have satisfied any outstanding obligations under certain discovery requests. 3. The Debtors believe that the proposed structured dismissal and payment of claims contemplated by this Motion will provide administrative creditors and employee health claims holders with a superior recovery on account of their claims than if the Debtors cases were converted to chapter 7 (which is the only other option). The Motion represents the best alternative for creditors to receive the highest possible distributions on account of their claims under the circumstances. The Debtors believe that this Motion is also supported by all of the major parties in interest in these cases, including GA, and the creditors committee. Jurisdiction and Venue 4. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). 5. Venue is proper in this district pursuant to 28 U.S.C and The statutory bases for the relief requested herein are sections 105(a), 349, 554(a) and 1112(b) of the Bankruptcy Code. Background 7. On February 4, 2015 (the Petition Date ), each of the Debtors filed with this Court a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors DOCS_SF: /001 3

4 Case MFW Doc 773 Filed 09/28/15 Page 4 of 27 are operating their business and managing their properties as debtors and debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 8. No request has been made for the appointment of a trustee or an examiner in these cases. An official committee of unsecured creditors (the Committee ) was appointed on February 12, The factual background regarding the Debtors, including their historical business operations and the events precipitating their chapter 11 filings, is set forth in detail in the Declaration of Anthony DiPippa in Support of First Day Motions (the DiPippa Declaration ) filed on February 4, 2015 [Docket No. 3] and fully incorporated herein by reference. A. The Debtors Going Out of Business Sales 10. On March 3, 2015, the Bankruptcy Court entered its Order Establishing Procedures for the Rejection of Executory Contracts and Unexpired Leases of Nonresidential Real Property [Docket No. 16] (the Lease Rejection Procedures Order ) that established, among other things, procedures for the rejection of the Debtors executory contracts and unexpired leases (the Real Property Leases ). As of April 30, 2015, the Debtors had either rejected all of their Real Property Leases under the Lease Rejection Procedures Order, or had otherwise entered into agreements terminating their Real Property Leases with the affected landlords. 11. On March 6, 2015, the Bankruptcy Court entered its Order Approving Sale of All or Substantially All of Debtors Assets and Granting Related Relief [Docket No. 275] (the Sale Order ). The Sale Order approved that certain Agency Agreement (the Agency DOCS_SF: /001 4

5 Case MFW Doc 773 Filed 09/28/15 Page 5 of 27 Agreement ) by and between Great American Group WF, LLC (the Agent or GA ) and Debtor Caché, Inc. ( Caché ). The Agency Agreement also provided the Agent with exclusive right to act as Caché s agent for the purposes of marketing and disposing of the Assets (as defined in section 17 of the Agency Agreement) (the GOB Sales ). The Agent completed the GOB Sales under the Agency Agreement on April 30, B. The Debtors Wind-down of Employee Programs and Employee Related Matters 12. As a result of the GOB Sales and the cessation of the Debtors operations, the Debtors proceeded to wind down their various employee programs, as more fully explained below. i. Self-Insured Health Plan Claims 13. As more fully summarized in the Debtors Opposition to United States Trustee s Motion to Convert Debtors Chapter 11 Cases to Cases Under Chapter 7 of the Bankruptcy Code Pursuant to 11 U.S.C and Granting Such Other Relief as the Court Deems Just, Proper and Equitable, [Docket No. 740] (the Conversion Motion Opposition ) and the accompanying Declaration of Conor P. Tully in Support of Opposition to United States Trustee s Motion to Convert (the Tully Declaration ), the Debtors maintained a self-funded employee medical and dental health benefit plan (the Health Plan ). The Health Plan was administered by Aetna. Aetna was paid a monthly service fee for administering the Health Plan. The Debtors were also obligated to reimburse Aetna on a dollar for dollar basis for the amounts Aetna paid medical providers on account of claims submitted under the Health Plan. 14. Postpetition, the Debtors received reimbursement claims from Aetna that were substantially higher than expected (the Employee Health Claims or EHCs ). Once the DOCS_SF: /001 5

6 Case MFW Doc 773 Filed 09/28/15 Page 6 of 27 Debtors became aware that they lacked funding to process and pay further Employee Health Care Claims, the Debtors and their professionals undertook extensive efforts to address this issue. Those efforts are in explained in detail in the Conversion Motion Opposition and the Tully Declaration. 15. On August 7, 2015, the Debtors sent a notice to their former employees who participated under the Health Plan (the Employee Health Claims Notice ). The Employee Health Care Notice requested the submission of supporting documentation for unpaid Employee Health Claims by September 30, 2015, in order to understand the universe of outstanding Employee Health Claims. The Debtors Notice of Administrative Claims Bar Date [Docket No. 756] (the Administrative Claims Bar Date Notice ) also fixed September 30, 2015 as the deadline to submit Employee Health Claims (to the extent they were not previously submitted to the Debtors). The Debtors are in discussions with Aetna for a mutually acceptable protocol for the processing of unpaid Employee Health Claims that is described more fully below. ii. The Debtors 401(k) Plan 16. As explained in the Wage Motion, the Debtors, as plan administrator, sponsored a prepetition 401(k) plan for the benefit of their former employees (the 401(k) Plan ). The Debtors contracted with T. Rowe Price Plan Services, Inc. ( TRP ) to provide plan administration services to the 401(k) Plan. 17. Upon the completion of the GOB Sales, the Debtors provided notice to both TRP (the Plan Direction Termination Letter ) and to the affected 401(k) Plan participants of the Debtors intention to terminate the 401(k) Plan as of April 30, The mailed notices of the termination of the 401(k) Plan (including a cover letter, a plan distribution form and DOCS_SF: /001 6

7 Case MFW Doc 773 Filed 09/28/15 Page 7 of 27 ERISA section 402(f) special tax notice) notifying the plan participants of their distribution options with respect to the terminated 401(k) Plan (the Plan Termination Notices ). With respect to notices that were returned as undeliverable, TRP performed a search for the affected plan participants and attempted to send follow up and additional notices based on any additional addresses located by TRP. 18. As noted above, the Plan Termination Notices provided, among other things, an opportunity for former 401(k) Plan participants to provide rollover or distribution instructions with respect to their 401(k) contributions. Participants who failed to provide timely instructions to TRP with respect to their 401(k) contributions were automatically rolled over to an IRA in the participant s name maintained by Oppenheimer & Co., Inc., in accordance with the procedures set forth in the Plan Direction Termination Letter and the Plan Termination Notices. TRP confirmed its obligation to file a final Form 5500 with the Internal Revenue Service on behalf of the 401(k) Plan and also acknowledged receipt of payment by the Debtors to file the Form The Debtors anticipate that TRP will file the Form 5500 in the ordinary course of the termination of the 401(k) Plan. iii. Payment of Employee Payroll Taxes and Final Employment Tax Returns 19. The Debtors previously used ADP to process and transfer payroll tax related amounts from the Debtors payroll to the appropriate taxing authorities. The Debtors paid all of their employees wages and employer and employee payroll taxes to the appropriate DOCS_SF: /001 7

8 Case MFW Doc 773 Filed 09/28/15 Page 8 of 27 taxing jurisdictions. 2 The Debtors are informed that ADP either has or shortly will file in the normal course of business final payroll tax returns for all applicable taxing jurisdictions. iv. Workers Compensation 20. The Debtors Motion for Entry of an Order (I) Authorizing Debtors to (A) Pay Wages, Salaries, And Other Compensation, Payroll Withholdings And Benefits Contributions, (B) Maintain Employee Medical And Similar Benefits, and (C) Pay Reimbursable Employee Expenses; And (II) Authorizing And Directing Banks And Other Financial Institutions to Pay All Checks and Electronic Payment Requests Made by Debtors Relating to the Foregoing [Docket No. 6] (the Wage Motion ) sets forth in detail the Debtors workers compensation insurance program as well as the various programs maintained by the Debtors in accordance with the laws of the various states in which the Debtors formerly conducted business. The Debtors maintained workers compensation insurance in accordance with the various states in which they operated postpetition and throughout the conclusion of the GOB Sales under the terms of their various workers compensation insurance programs. C. Secured Texas Tax Claims and Postpetition Taxes 21. The Sale Order provided for the segregation of $125,000 (the Tax Escrow ) to which the claims (if any) of certain Texas entities identified in the Sale Order (the Tax Authorities ) would attach with the same validity, extent and priority as existed prior to the sale. In accordance with the Sale Order, the Debtors currently have segregated $125,000 Tax Escrow for the payment of any valid claims by the Taxing Authorities (the Texas Tax Claims ). 2 Three former employees filed claims for unpaid wages with the California Labor Commissioner (the Commissioner ) naming the Debtors and the Agent. This non-payment of wages was due to a clerical error. The Debtors subsequently resolved the error and paid the affected employees their owed wages. As a result, these three former employees have agreed to withdraw their pending claims with the Commissioner. DOCS_SF: /001 8

9 Case MFW Doc 773 Filed 09/28/15 Page 9 of 27 The Sale Order provides that Tax Authorities will receive payment of the Texas Tax Claims upon agreement of the Debtors, the Agent, the Committee and the Tax Authorities. Following payment of the Texas Tax Claims, any excess funds remaining in the Tax Escrow shall be used to satisfy other outstanding Remaining Administrative Claims, as more fully explained below. 22. With respect to sales taxes, the Debtors believe that their postpetition sales tax liabilities have been paid. Postpetition, the Debtors filed all applicable sales tax returns with the appropriate jurisdictions. The final sales occurred on or before April 30, 2015, at the conclusion of the GOB Sales. During each month of the chapter 11 cases (or more frequently as applicable), the Debtors filed their sales tax returns and remitted payments on or before the applicable due dates. During the week of May 4, 2015, the final sales tax returns were filed for all taxing jurisdictions in which the Debtors did business prior to the conclusion of the GOB Sales. In general, the Debtors tax returns and related payments were remitted electronically utilizing the typical pre-bankruptcy sales tax procedures. During the week of May 11, 2015, paper copies of all final tax returns were sent via certified mail (with return receipt requested) to the applicable taxing authorities and a request for prompt determination in accordance with 11 U.S.C. 505(b)(2) was made. To date, the Debtors have not received any notices requesting the audit of sales tax liabilities, and have satisfied all sales tax obligations incurred during the Chapter 11 cases. D. The Utility Deposit Account 23. Pursuant to the terms of the Final Order (A) Prohibiting Utility Providers from Altering, Refusing or Discontinuing Service, (B) Deeming Utilities Adequately Assured of Future Performance, and (C) Establishing Procedures for Determining Adequate Assurance of DOCS_SF: /001 9

10 Case MFW Doc 773 Filed 09/28/15 Page 10 of 27 Payment [Docket No. 182] (the Utility Order ), the Debtors established an account in the amount of $135,000 (the Utility Deposit Account ) for the benefit of the Debtors various utility providers. The Utility Deposit Account contains an amount equal to two weeks estimated utility usage for each utility in satisfaction of the requirements of section 366 of the Bankruptcy Code. Thus, to the extent that a utility has an unpaid claim for postpetition utility service provided to the Debtors, that utility is entitled to payment of such unpaid claim from the amount of the two week deposit made into the Utility Deposit Account on such utility s behalf. Any amounts left in the Utility Deposit Account, either after payment the deposit allocated to each utility, or because a particular utility has already received full payment on account of its claim, shall be used to satisfy other outstanding Remaining Administrative Claims, as more fully explained below. E. The Settlement Between the Debtors, the Committee, DIP Lender and the Agent 24. On May 20, 2015, the Bankruptcy Court entered its Final Order Pursuant to 11 U.S.C. 105, 361, 362, 363, 364 and 507 (I) Approving Postpetition Financing, (II) Authorizing Use of Cash of Collateral, and (III) Granting Liens and Providing Superpriority Administrative Expense Status, (IV) Granting Adequate Protection, (V) Modifying Automatic Stay, and (VI) Granting Related Relief [Docket No. 684] (the Final DIP Order ). The Final DIP Order, among other things, provides for the deposit of $800,000 into a disbursement account (the 503(b)(9) /Stub Rent Disbursement Account ), which funds will be used to pay allowed claims arising under section 503(b)(9) of the Bankruptcy Code (the 503(b)(9) Claims ) as well as allowed stub rent claims asserted by landlords for unpaid rent the Petition Date through DOCS_SF: /001 10

11 Case MFW Doc 773 Filed 09/28/15 Page 11 of 27 February 28, 2015 (the Stub Rent Claims ). The Final DIP Order also provided for the transfer of all claims arising under chapter 5 of the Bankruptcy Code to the DIP Lender. 25. As a result of the agreement set forth in the Final DIP Order, all allowed 503(b)(9) Claims and Stub Rent Claims will be exclusively satisfied from the 503(b)(9)/Stub Rent Disbursement Account and shall not receive any further distributions from the Debtors estates. As a result, any amounts to be distributed to holders of allowed administrative claims following the dismissal of these Chapter 11 cases will not be made to the holders of 503(b)(9) Claims and Stub Rent Claims. F. The Sale of the Debtors Remaining Assets 26. On October 20, 2005, the case styled In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Case No. 1:05-md JG-JO) (the Visa/MasterCard Case ) was commenced in the United States District Court for the Eastern District of New York by numerous merchants, retailers and trade associations (collectively, the Plaintiffs ) against, among other entities, Visa, MasterCard International, Inc., and other named defendants (the Defendants ). Pursuant to the Visa/MasterCard Case, the Plaintiffs claim that since January 1, 2004, the Defendants conspired unlawfully to fix the price of interchange fees charged to merchants for transactions processed over the Visa and MasterCard networks. 27. The Debtors may have a claim in the litigation (the Interchange Litigation Claim ). On August 10, 2015, the Debtors filed the Debtors Motion for Entry of an Order (A) Approving the Sale of the Visa/Mastercard Claim and (B) Granting Retroactive Approval of Bid Procedures and the Form and Manner of Notice Related Thereto [Docket No. 729] (the Interchange Litigation Claim Sale Motion ). The Interchange Litigation Claim Sale DOCS_SF: /001 11

12 Case MFW Doc 773 Filed 09/28/15 Page 12 of 27 Motion seeks authority to approve (i) the sale of the Interchange Litigation Claim to the highest and best bidder and (ii) retroactively approve the sale and bidding procedures adopted by the Debtors for the sale of the Interchange Litigation Claim. The Debtors initially scheduled a hearing on the Interchange Litigation Claim Sale Motion for September 1, 2015, but elected to continue that hearing in order to solicit additional bidders. A continued hearing on the Interchange Litigation Claim Sale Motion is scheduled for October 5, G. The Motion to Convert the Debtors Chapter 11 Cases 28. On August 6, 2015, the Office of the United States Trustee filed its United States Trustee s Motion to Convert Debtors Chapter 11 Cases to Cases Under Chapter 7 of the Bankruptcy Code Pursuant to 11 U.S.C and Granting Such Other Relief as the Court Deems Just, Proper and Equitable [Docket No. 720] (the Conversion Motion ). On August 25, 2015, the Debtors filed their opposition to the Conversion Motion [Docket No. 740]. The Court conducted a hearing on the Conversion Motion on September 1, 2015 (the Conversion Motion Hearing ). At the Conversion Motion Hearing, the Court considered the argument by the parties and the evidence provided by the Debtors. 29. At the conclusion of the Conversion Motion Hearing, the Court declined to grant the Conversion Motion Hearing. At the Conversion Motion Hearing, the Court (i) continued the Conversion Motion Hearing to October 19, 2015; (ii) fixed an administrative claims bar date of September 30, 2015, for parties to file administrative claims (the Administrative Claims Bar Date ); 3 (iii) set a hearing date of October 5, 2015, in order to 3 On September 3, 2015, the Debtors served the Administrative Claims Bar Date on known creditors and other parties in interest. DOCS_SF: /001 12

13 Case MFW Doc 773 Filed 09/28/15 Page 13 of 27 enable the Debtors to conduct an auction and obtain approval of the sale of the Interchange Litigation Claim to the highest and best bidder. 30. In addition to the Interchange Litigation Claim, the Debtors are currently working with their former credit card processors to obtain the release of holdbacks generated by American Express and Bank of America Merchant Services as security for potential customer chargebacks and other disputes (the Credit Card Refunds ). The Proposed Distribution of the Debtors Remaining Assets and Satisfaction of Claims 31. For the reasons explained in the Conversion Motion Opposition and as more fully explained below, the Debtors, GA and the Committee agree that the orderly dismissal of the Debtors chapter 11 cases pursuant to the structure described below will provide holders of Employee Health Claims and allowed administrative claims with a superior and faster distribution than the relief requested under the Conversion Motion. 32. Pursuant to the Administrative Claims Bar Date, the amount of asserted administrative claims will not be known until September 30, In addition, the Debtors will not know the full amount of the asserted Employee Health Claims until September 30, 2015 pursuant to the Employee Health Claims Notice (as well as the Administrative Claims Bar Date, which reiterated the deadline and procedure for the submission of the relevant documentation in support of the Employee Health Claims). The Debtors will also not know the amount of the net proceeds derived from the sale of the Interchange Litigation Claim until the conclusion of the auction and sale hearing on the Interchange Litigation Claim Sale Motion on October 5, Set forth below is the Debtors proposed treatment and anticipated distributions to holders of administrative claims, as more fully summarized on Exhibit A (Employee Health Claims) and DOCS_SF: /001 13

14 Case MFW Doc 773 Filed 09/28/15 Page 14 of 27 Exhibit B (Remaining Administrative Claims). The Debtors intend to file a supplement to this Motion (the Supplement ) prior to the hearing to update both the Employee Health Claims on Exhibit A received after the date of the filing of the Motion as well as any Remaining Administrative Claims submitted after the filing of the Motion. In addition, the Supplement will include additional information the satisfaction of GA s Superpriority Claim (defined below), the incurred fees and expenses of professionals employed in these cases updated information on potential assets for distribution to holders of administrative claims, as well as any additional information relevant to the Motion. (1) Satisfaction of the Agent s Superpriority Claim 33. The Agent has a superpriority claim in the amount of $1,511,000 (the Superpriority Claim ). The Agent and the DIP Lender are also parties to an agreement dated as of April 23, 2015 (the GA Backstop Agreement ) pursuant to which the DIP Lender agreed to backstop and pay the Agent up to $400,000 ( Backstop Agreement Cap ) in amounts owed to GA by the Debtors. 34. The Debtors and the Agent have agreed to the means for the satisfaction of the Superpriority Claim of the Agent subject to the dismissal of the Chapter 11 cases on the terms set forth in this Motion. In order to fund the payment of unpaid Employee Health Claims, the Agent has agreed to contribute $200,000 from the proceeds derived from the GOB Sales (the Employee Health Claims Contribution ). The earmarking of the $200,000 for the payment of Employee Health Benefit Claims is conditioned upon the entry of an order dismissing these chapter 11 cases acceptable to the Agent. Upon entry of an order granting this Motion, the Employee Health Claims Contribution will be exclusively earmarked to first pay unpaid and DOCS_SF: /001 14

15 Case MFW Doc 773 Filed 09/28/15 Page 15 of 27 valid Employee Health Claims, with any remainder used to pay Remaining Administrative Claims. 35. The Superpriority Claim of the Agent will be treated pursuant to mutually acceptable terms and conditions to be further described in the Supplement to this Motion. These treatment terms would also be conditioned on entry of an order dismissing the Debtors chapter 11 cases in a form acceptable to the Agent and the Debtors. (2) Payment of the Employee Health Claims 36. As explained above, the payment of the Employee Health Claims is dependent on the agreement to contribute the Employee Health Claims Contribution by the Agent. The Employee Health Claims submitted by employees reflect, in many instances, a medical provider s gross charges without adjustment for the negotiated reimbursement rates under the Plan or a particular employee s copayment, coinsurance or other deductible requirements. The Employee Health Claims will either be administered by the Debtors, or with Aetna pursuant to a claims processing protocol for the manual processing of Employee Health Claims (the Aetna Protocol ) that the Debtors are negotiating with Aetna. The terms of any Aetna Protocol will be filed with the Supplement. If there are any amounts remaining after the payment of the Employee Health Claims from the Employee Health Claims Contribution these surplus funds will be added to the amounts available to pay Remaining Administrative Claims. For example, if all Employee Health Claims are paid, and $25,000 remains of the Health Care Claims Contribution, then the Debtors shall transfer the $25,000 to the Disbursement Account in order to pay Remaining Administrative Claims. DOCS_SF: /001 15

16 Case MFW Doc 773 Filed 09/28/15 Page 16 of 27 (3) Waiver of Professional Fees in Excess of the Escrowed Amounts Under the Final DIP Order 37. The Debtors have incurred substantial unpaid fees and expenses for certain professionals (collectively, the Professional Fees ) employed by the Debtors and the Committee (collectively, the Professionals ). Certain professionals in these cases, including (i) Pachulski Stang Ziehl & Jones LLP (Debtors general bankruptcy counsel); (ii) FTI Consulting, Inc. (Debtors financial advisors); (iii) Otterbourg and Bayard (Committee s counsel); (iv) Capstone (Committee s financial advisors); and (v) KCC LLC (Claims Agent) (the entities referred to in section (i) through (v) of this paragraph are referred to collectively as the Affected Professionals ) have incurred fees in excess of the amounts carved out from the DIP Lender s collateral and escrowed for such professionals pursuant to the Final DIP Order (the Professional Fee Escrow ). A summary of (i) each Affected Professional s incurred fees and expenses, (ii) the amount of the Professional Fee Escrow for each Professional; and (iii) the estimated amount of fees and expenses of each Affected Professional in excess of the Professional Fee Escrow that will not be paid in these chapter 11 cases will be included with the Supplement. (4) Payment of Allowed Administrative Claims b. The Debtors remaining assets will be used to pay the claims of the Remaining Administrative Claims that were timely filed pursuant to the Administrative Bar Date. As noted above, the Remaining Administrative Claims do not include (i) the Employee Health Claims (which claims will be satisfied from the Employee Health Claims Contribution), (ii) the 503(b)(9) Claims and the Stub Rent Claims (which claims will be satisfied exclusively from the 503(b)(9)/Stub Rent Disbursement Account); and (iii) Professional Fees (which claims DOCS_SF: /001 16

17 Case MFW Doc 773 Filed 09/28/15 Page 17 of 27 will be satisfied exclusively from the available amounts in the Professional Fee Escrow. The Remaining Administrative Claims include: (i) creditors and vendors that provided goods and services after the Petition Date who timely filed claims by the Administrative Claims Bar Date, (ii) ordinary course professionals (who were not provided with escrowed amounts under the Professional Fee Escrow). 38. Although the Administrative Claims Bar Date of September 30 has not yet passed, so far, the Debtors have received over $1.5 million in asserted Remaining Administrative Claims as set forth on Exhibit B hereto. 4 The Debtors will note additional timely filed Remaining Administrative Claims in the Supplement. The remaining assets that will be used to pay the allowed Remaining Administrative Claims include the following sources: (i) remaining cash on hand after payment of the Superpriority Claim; (ii) remaining amounts (as well as any refunds from deposits previously made by the Debtors directly to certain utilities) in the Utility Deposit Order; (iii) remaining amounts in the Tax Escrow Account after payment of secured claims of the Tax Authorities; (iv) any remaining amounts of the Employee Health Claim Contribution after payment of Employee Health Claims; and (v) any other assets belonging to the Debtors not previously allocated for payment of other claims described in this Motion (collectively, the Remaining Estate Assets ). 39. To the extent that the Remaining Estate Assets are less than the allowed amount of Remaining Administrative Claims, there may not be sufficient funds available for 4 A number of the claims set forth on Exhibit B are claims by landlords filed in May and June of 2015 that apparently relate to Stub Rent Claims treated by under the 503(b)(9)/Stub Rent Disbursement Account. The Debtors will revise the list of Remaining Administrative Claims set forth on Exhibit B hereto to both (i) add any timely filed Remaining Administrative Claims filed after the date of this Motion; and (ii) eliminate 503(b)(9) Claims and Stub Rent Claims that will be satisfied from the 503(b)(9)/Stub Rent Disbursement Account, and (ii) eliminate any other claims improperly included as a Remaining Administrative Claim. DOCS_SF: /001 17

18 Case MFW Doc 773 Filed 09/28/15 Page 18 of 27 priority or general, unsecured claims in these cases. However, in the event that all allowed Remaining Administrative Claims in these chapter 11 cases are paid, the Disbursing Agent (defined below) shall pay priority unsecured claims in the amounts and the priorities set forth in section 507(a) of the Bankruptcy Code. H. Disbursing Agent s Payment of Claims 40. The Debtors, under the supervision of the Debtors Chief Restructuring Officer (the Disbursing Agent ), will process, reconcile and pay valid Remaining Administrative Claims, 5 Texas Tax Claims, and Employee Health Claims. The Disbursing Agent shall perform these services free of charge. 41. The Disbursing Agent s activities, powers and duties will be those the Disbursing Agent reasonably determines are necessary to and consistent with the Motion. The Debtors propose that the Disbursing Agent have the sole and exclusive authority to determine the valid amount of any Remaining Administrative Claims, utility claims and Texas Tax Claims. However, the Debtors propose that the Disbursing Agent not be required to effectuate any de minimis distributions for $25 or less on account of any Allowed Remaining Administrative Claim. 42. The Debtors propose that the Disbursing Agent be authorized to determine the valid amount of any Remaining Administrative Claims, utility claims and Texas Tax Claims and, if appropriate, effectuate payment of such claims in the Disbursing Agent s sole and exclusive discretion. 5 The net proceeds derived from the Remaining Estate Assets shall be deposited into a separate account the Disbursement Account ). The Disbursement Account will be established for the primary purpose of (i) holding the net Remaining Estate Assets and (ii) making distributions to holders of Remaining Administrative Claims. DOCS_SF: /001 18

19 Case MFW Doc 773 Filed 09/28/15 Page 19 of 27 I. Disbursement of amounts in Professional Fee Escrow to Professional Fees 43. The various Professionals in these cases intend to file final fee applications approving their incurred fees and expenses. As noted above, payment of any Professional s fees and expenses will be expressly limited to the amounts allocated to that Professional in the Professional Fee Escrow. The fees and expenses of the Affected Professionals in these cases substantially exceed the amounts allocated to them in the Professional Fee Escrow. The Debtors expect to file with the Supplement a chart setting forth (i) the total fees and expenses of each Professional and (ii) the Professional Fee Escrow amount for each Professional. The Debtors request that any order granting this Motion and dismissing these cases be deferred until after the Court has ruled on the Professional fee applications. After these fee applications have been filed and heard by the Court, the Debtors will lodge an order granting this Motion. Authority 44. The Court should approve the dismissal of these chapter 11 cases under the terms proposed by the Motion, because, among other things: (a) the Debtors lack the financial ability to pay all administrative claims in full, and therefore cannot satisfy the requirements of the Bankruptcy Code for confirmation of plan; (b) Debtors have no remaining estate assets to administer; (c) conversion to a case under Chapter 7 of the Bankruptcy Code would not provide any additional benefit to creditors; and (d) the proposed procedures provide for a reasonable and speedy method for payment of the claims contemplated under this Motion. 45. The United States Court of Appeals for the Third Circuit recently clarified that bankruptcy courts have the power, in appropriate circumstances, to approve structured DOCS_SF: /001 19

20 Case MFW Doc 773 Filed 09/28/15 Page 20 of 27 dismissals. In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at * In so finding, the Third Circuit stated that structured dismissals are simply dismissals that are preceded by other orders of the bankruptcy court that for cause may be given continuing effect by the Court. See In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at *17 (referring to court s ability to deviate from Section 349(b) for cause). 46. Under section 1112(b) of the Bankruptcy Code, a court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause. 11 U.S.C. 1112(b) (emphasis added); In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at *15; In re Albany Partners, Ltd., 749 F.2d 670, 674 (11th Cir. 1984); In re Blunt, 236 B.R. 861, 864 (Bankr. M.D. Fla. 1999). A determination of cause is made by the court on a case-by-case basis. Albany Partners, 749 F.2d at 674. The decision to dismiss or convert a case is particularly delegated to the bankruptcy court s sound discretion. See In re Camden Ordinance Mfg. Co. of Arkansas, Inc., 1999 WL , at *2 (Bankr. E.D. Pa. 1999) (citing In re Atlas Supply Corp., 837 F.2d 1061, 1063 (5th Cir. 1988). 47. The legislative history of section 1112(b) of the Bankruptcy Code and relevant case authority indicate that a court has wide discretion to use its equitable powers to dispose of a debtor s case. H.R. Rep. No. 595, 95th Cong., 1st Sess. 405 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 117 (1978), reprinted in 1978 U.S.C.C.A.N ; see also In re Preferred Door Co., 990 F.2d 547, 549 (10th Cir. 1993) (stating that a court has broad discretion to dismiss a bankruptcy case); In re Sullivan Cent. Plaza I, Ltd., 935 F.2d 723, 728 (5th Cir. 1991) (stating that a determination of whether cause exists under section 1112(b) of the Bankruptcy Code rests DOCS_SF: /001 20

21 Case MFW Doc 773 Filed 09/28/15 Page 21 of 27 in the sound discretion of the bankruptcy court); In re Koerner, 800 F.2d 1358, 1367 & n.7 (5th Cir. 1986) (stating that a bankruptcy court is afforded wide discretion under section 1112(b) of the Bankruptcy Code); Albany Partners, 749 F.2d at 674 (same). 48. Section 1112(b) of the Bankruptcy Code provides a nonexclusive list of 16 examples of cause which may constitute grounds for dismissal. 11 U.S.C. 1112(b)(4)(A)-(P); Frieouf v. U.S., 938 F.2d 1099, 1102 (10th Cir. 1991) (stating that section 1112(b) of the Bankruptcy Code s list is nonexhaustive); In re Blunt, 236 B.R. at 864 (same). One such ground is where there is substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation[.] 11 U.S.C. 1112(b)(4)(A); see In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at *19-20 (3d Cir. May 21, 2015). 49. Here, there is no reasonable likelihood of rehabilitation since the Debtors businesses have been liquidated through the GOB Sales and the Debtors other assets have been (or shortly will be) liquidated. Nor will there likely be funds available to distribute to priority or general unsecured creditors. Since there may not be sufficient funds projected to pay all administrative claims, nor are there funds available to pay priority claims, it would not be possible for the Debtors to confirm a chapter 11 plan. Moreover, the cost of pursuing such a plan would only further dilute the funds that remain. The Debtors have met their burden of proof to show that cause exists to dismiss these chapter 11 cases under section 1112(b) of the Bankruptcy Code due to the absence of a reasonable likelihood of rehabilitation and that there would be a continuing loss to or diminution of the estate if the Debtors were to pursue confirmation of a plan or otherwise continue to administer the estates. DOCS_SF: /001 21

22 Case MFW Doc 773 Filed 09/28/15 Page 22 of Once a court determines that cause exists to dismiss a chapter 11 case, the court must also evaluate whether dismissal is in the best interests of the estates and creditors, as opposed to conversion of the case to one under chapter 7 or the appointment of a chapter 11 trustee. See In re Superior Sliding & Window, Inc., 14 F.3d 240, 243 (4th Cir. 1994); In re Mazzocone, 183 B.R. 402, 411 (Bankr. E.D. Pa. 1995), aff d 200 B.R. 568 (E.D. Pa. 1996); In re Warner, 83 B.R. 807, 809 (Bankr. M.D. Fla. 1988). A variety of factors demonstrate that it is in the best interests of the Debtors estates and creditors to dismiss these chapter 11 cases and authorize the procedures sought herein. 51. Dismissal of the Debtors chapter 11 cases meets the best interests test where a debtor has nothing left to reorganize and the debtor s assets are fixed and liquidated. See In re BTS, Inc., 247 B.R. 301, 310 (Bankr. N.D. Okla. 2000); In re Camden Ordinance Mfg. Co. of Arkansas, Inc., 245 B.R. 794, 799 (E.D. Pa. 2000) (finding that a reorganization to salvage a business which ceased doing business was not feasible); In re Brogdon Inv. Co., 22 B.R. 546, 549 (Bankr. N.D. Ga. 1982) (dismissing chapter 11 case in part where there was simply nothing to reorganize and no reason to continue the reorganization). 52. As noted above, the Debtors have completed their GOB Sales and there is no business left to reorganize. There is no prospect of a confirmable plan in these cases and conversion to a case under chapter 7 would be a bridge to nowhere. In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at *19. Dismissal of the Debtors cases is therefore within this Court s discretion. See id. DOCS_SF: /001 22

23 Case MFW Doc 773 Filed 09/28/15 Page 23 of 27 J. Binding Effect of Prior Stipulations, Settlements, Rulings, Orders and Judgments 53. Dismissal of a case by the Court will typically reinstate the pre-petition state of affairs by revesting property in the debtor and vacating orders and judgments of the bankruptcy court. In re Jevic Holding Corp., 2015 U.S. App. LEXIS 8380, at *17 (3rd Cir. May 21, 2015). This result, however, may be altered for cause. See id. Based on the reasons set forth in this Motion, the Parties assert that cause exists to allow all stipulations, settlements, rulings, orders, and judgments entered by this Court during these chapter 11 cases to be given continued effect, notwithstanding the requested dismissal. K. The Debtors Need to Destroy, Abandon, or Otherwise Disposed of the Remaining Documents 54. Following the dismissal of these cases, the Debtors ultimately need to destroy, abandon, or otherwise dispose of the Remaining Documents. The Debtors do not have the resources pay the expenses to indefinitely store the Remaining Documents The destruction of the Remaining Documents is governed by sections 554(a) and 363 of the Bankruptcy Code. Section 554(a) provides, in pertinent part: After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. 11 U.S.C. 554 (a). Section 363(b)(1) provides, in pertinent part: 11 U.S.C. 363(b)(1). The trustee, after notice and a hearing, the trustee may use, sell, or lease, other than in the ordinary course of business, property of the estate. DOCS_SF: /001 23

24 Case MFW Doc 773 Filed 09/28/15 Page 24 of The abandonment, destruction or other disposal of the Remaining Documents is also governed by Bankruptcy Rule 6007, which reads, in pertinent part, as follows: Fed.R. Bankr. P Notice of Proposed Abandonment or Disposition; Objections; Hearing. Unless otherwise directed by the court, the trustee or debtor in possession shall give notice of a proposed abandonment or disposition of property to the United States trustee, all creditors, indenture trustees and committees elected pursuant to 705 or appointed pursuant to 1102 of the Code. A party in interest may file and serve an objection within 15 days of the mailing of the notice, or within the time fixed by the court. If a timely objection is made, the court shall set a hearing on notice to the United States trustee and to the other entities as the court may direct. 56. Section 554(a) of the Bankruptcy Code serves the purpose of expeditious and equitable distribution by permitting the trustee to abandon property that consumes the resources and drains the income of the estate. In re Pilz Compact Disc, Inc., 229 B.R. 630, 635 (Bankr. E.D.Pa. 1999) (citation omitted). The Court need not consider speculative factors when making a determination pursuant to section Generally, when a debtor seeks to use, sell or lease assets of the estate pursuant to section 363 of the Bankruptcy Code, the debtor s good faith business judgment regarding the proposed transaction should not be disturbed absent a showing that the transaction constitutes an abuse of discretion or is contrary to the interests of the creditors. See Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, (3d Cir. 1986). The same standard applies to a request to abandon property pursuant to section 554 of the Bankruptcy Code. See Cult Awareness Network, 205 B.R. at 579 (court must examine trustee s decision to abandon property to ensure it reflects business judgment made in good faith). DOCS_SF: /001 24

25 Case MFW Doc 773 Filed 09/28/15 Page 25 of The Debtors need to destroy, abandon, or otherwise dispose of the Remaining Documents. The Remaining Documents consist primarily of employee personnel files (which the Debtors would keep for a period of seven years in the ordinary course of their prior business) and store media receipts, consisting of register transactions (which the Debtors would ordinarily keep for a year). The Remaining Documents are voluminous because they are kept on a store by store basis with respect to the specific employees and register transactions relating to a particular store. The Remaining Documents thus consist of hundreds of boxes and file cabinets and are currently in storage. 59. The Debtors also do not have funds necessary to pay for the indefinite storage of the Remaining Documents. Likewise, the Debtors will no longer have the personnel to access and review the Remaining Documents after the dismissal of these cases. Destruction of the Remaining Documents will also preserve the privacy of the Debtors current and former employees by preventing the dissemination of any personal information contained in the Remaining Documents. The Debtors submit that the proposed destruction, abandonment, or other disposition of the Remaining Documents is a good faith exercise of their sound business judgment in light of these facts and circumstances and is also in the best interests of the Debtors and their former employees. As noted above, the Debtors will not destroy the Remaining Documents until they have satisfied their obligations with respect to any pending discovery requests. Accordingly, the Debtors should be authorized to destroy, abandon, or otherwise dispose of the Remaining Documents. DOCS_SF: /001 25

26 Case MFW Doc 773 Filed 09/28/15 Page 26 of 27 Notice 60. Notice of this Motion has been given to the following parties or, in lieu thereof, to their counsel, if known: (a) the Office of the United States Trustee; (b) counsel to the Committee; (c) the Debtors prepetition and postpetition lenders; (d) the Agent or its counsel; (e) the DIP Lender; (e) any party that has requested notice pursuant to Bankruptcy Rule 2002; and (f) all of the Debtors creditors In light of the nature of the relief requested in this Motion, the Debtors respectfully submit that no other or further notice is necessary. No Prior Request 61. No prior request for the relief sought in this Motion has been made to this or any other court. DOCS_SF: /001 26

27 Case MFW Doc 773 Filed 09/28/15 Page 27 of 27 WHEREFORE, the Debtors respectfully request that this Court enter an order, in substantially the form attached hereto, (a) granting the Motion, (b) authorizing the Debtors to take all actions necessary to effectuate the relief requested in the Motion without the need for further order by this Court, and (c) granting such other and further relief as the Court deems just and proper. Dated: September 28, 2015 PACHULSKI STANG ZIEHL & JONES LLP /s/ Laura Davis Jones Laura Davis Jones (DE Bar No. 2436) David M. Bertenthal (CA Bar No ) Joshua M. Fried (CA Bar No ) Colin R. Robinson (DE Bar No. 5524) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE Telephone: 302/ Facsimile: 302/ Counsel for the Debtors and Debtors in Possession DOCS_SF: /001 27

28 Case MFW Doc Filed 09/28/15 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: CACHÉ, INC., et al., 1 Debtors. ) ) ) ) ) Chapter 11 Case No (MFW) (Jointly Administered) Objection Deadline: October 14, 2015 at 4:00 p.m. (prevailing Eastern time) Hearing Date: October 19, 2015 at 2:00 p.m. (prevailing Eastern time) NOTICE OF DEBTORS MOTION PURSUANT TO 11 U.S.C. 105(a), 349, 363, 554(a) AND 1112(b) FOR ENTRY OF AN ORDER: (I) DISMISSING THE DEBTORS CASES (II) AUTHORIZING THE DESTRUCTION, ABANDONMENT, OR OTHER DISPOSAL OF REMAINING RECORDS AND DOCUMENTS AND (III) GRANTING RELATED RELIEF PLEASE TAKE NOTICE that on September 28, 2015, the above-captioned debtors and debtors in possession (the Debtors ) filed the Debtors Motion Pursuant to 11 U.S.C. 105(a), 349, 363, 554(a) and 1112(b) for Entry of an Order: (I) Dismissing the Debtors Cases (II) Authorizing the Destruction, Abandonment, or Other Disposal of Remaining Records and Documents and (III) Granting Related Relief (the Motion ) with the United States Bankruptcy Court for the District of Delaware, 824 Market Street, Wilmington, Delaware (the Bankruptcy Court ). The Motion seeks a structured dismissal of the Chapter 11 cases of the Debtors under which, if approved by the Bankruptcy Court, a fund would be established for the payment of outstanding employee health claims that were timely submitted by September 30, In addition, the proposed dismissal also contemplates that other outstanding administrative claims would be paid a distribution from remaining assets of the Debtors estates. The description in this notice of the relief requested in the Motion is qualified by the specific terms and conditions of the Motion and parties in interest should refer to the Motion for further details. PLEASE TAKE FURTHER NOTICE that the Debtors intend to file a supplement to the Motion (the Supplement ) prior to the above-captioned-hearing date in order to include updated information on (i) possible additional administrative and employee health claims that may have been received by the September 30, 2015 deadline established in these cases; (ii) additional information on possible processing of the employee health care claims in accordance with the terms of the Debtors health benefits plan; (iii) updated information on the proposed satisfaction of the outstanding super-priority claim of Great American Group WG, LLC from further recoveries obtained by the Debtors following the date of this notice; (iv) professional fees and expenses incurred in these cases; and (v) any other additional information that may supplement the Motion. The Motion and the Supplement (once filed) will be posted on the Debtors claims agent s website at 1 The Debtors, together with the last four digits of each Debtor s tax identification number, are: Caché, Inc. (8181); Caché of Las Vegas, Inc. (9821); and Caché of Virginia, Inc. (9725). The service address for each of the Debtors is 256 W. 38th Street, New York, NY DOCS_DE: /001