Case 18-11736 Doc 8 Filed 07/29/18 Page 1 of 35 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ---------------------------------------------------------------x In re HERITAGE HOME GROUP LLC, et al., Debtors. 1 Chapter 11 Case No. 18-11736 ( ) (Joint Administration Requested) ---------------------------------------------------------------x DEBTORS MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS AUTHORIZING (I) CONTINUED USE OF EXISTING CASH MANAGEMENT SYSTEM, (II) CONTINUATION OF INTERCOMPANY TRANSACTIONS, AND (III) CONTINUED USE OF EXISTING BANK ACCOUNTS AND CHECK STOCK The above-captioned debtors and debtors in possession (collectively, the Debtors ) hereby submit this motion (the Motion ) for entry of interim and final orders, substantially in the forms attached hereto as Exhibit A (the Proposed Interim Order ) and Exhibit B (the Proposed Final Order, and together with the Proposed Interim Order, the Proposed Orders ), pursuant to sections 105(a), 345(b), 363, 364, and 503(b)(1) of title 11 of the United States Code, 11 U.S.C. 101 1532 (the Bankruptcy Code ), Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), and Rule 2015-2 of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), authorizing (i) the Debtors to continue using their existing cash management system, (ii) the Debtors continuation of Intercompany Transactions (as defined below) in the ordinary course of business and consistent with historical business practices, and (iii) the Debtors to continue using their existing bank accounts and check stock. In support of this Motion, the Debtors respectfully represent as follows 0123359526.4 1 The Debtors in these chapter 11 cases, along with the last four digits of each debtor s tax identification number, as applicable, are Heritage Home Group LLC (9506); HH Global II B.V. (0165); HH Group Holdings US, Inc. (7206); HHG Real Property LLC (3221); and HHG Global Designs LLC (1150). The Debtors corporate headquarters is located at 1925 Eastchester Drive, High Point, North Carolina 27265.
Case 18-11736 Doc 8 Filed 07/29/18 Page 2 of 35 JURISDICTION AND VENUE 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, 2012. This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2), and, pursuant to Local Rule 9013-1(f), the Debtors consent to the entry of a final order by the Court in connection with this Motion to the extent it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 2. Venue is proper pursuant to 28 U.S.C. 1408 and 1409. 3. The statutory and legal predicates for the relief requested herein are sections 105(a), 345(b), 363(c)(1), 364, and 503(b)(1) of the Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local Rule 2015-2. BACKGROUND I. General Background 4. On the date hereof (the Petition Date ), the Debtors commenced voluntary cases under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their business and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in these chapter 11 cases and no committees have been appointed or designated. 5. The Debtors have requested that these chapter 11 cases be consolidated for procedural purposes only, and jointly administered pursuant to Bankruptcy Rule 1015(b). 6. Information regarding the Debtors business, capital structure, and the circumstances leading to these chapter 11 cases is set forth in the Declaration of Robert D. 0123359526.4 2
Case 18-11736 Doc 8 Filed 07/29/18 Page 3 of 35 Albergotti in Support of Chapter 11 Petitions and First-Day Motions (the First Day Declaration ), 2 filed contemporaneously herewith and incorporated herein by reference. II. The Debtors Cash Management System 7. The Debtors business requires the collection, payment, and transfer of funds through numerous bank accounts. In the ordinary course of business and prior to the Petition Date, the Debtors maintained a centralized cash management system (the Cash Management System ). Like other large businesses, the Debtors designed the Cash Management System to efficiently collect, transfer, and disburse funds generated through the Debtors operations and to accurately record such collections, transfers, and disbursements as they are made. As of the Petition Date, the Cash Management System is comprised of fifty-seven (57) bank accounts (collectively, the Bank Accounts ), all of which are held by Debtor Heritage Home Group LLC. As set forth on the schedule of Bank Accounts attached hereto as Exhibit C, the Bank Accounts are primarily are held at PNC Bank, N.A. ( PNC ), with two Bank Accounts at Wells Fargo, N.A. ( Wells Fargo ) and one inactive Bank Account at HSBC Bank USA, N.A. ( HSBC and collectively with PNC and Wells Fargo, the Banks ). A more detailed description of the Cash Management System is set forth below and a demonstrative chart of the Cash Management System is set forth in Exhibit D attached hereto. 8. The Debtors generate revenue primarily from wholesale and retail sales of home furnishings through their own stores, interior designers, multi-line/independent retailers, dealerowned stores, and mass-merchant stores. Sales receipts and all other deposits are collected and deposited into the depository Bank Accounts (the Depository Accounts ), which are primarily 2 Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the First Day Declaration. 0123359526.4 3
Case 18-11736 Doc 8 Filed 07/29/18 Page 4 of 35 located at PNC. 3 Sub-concentration accounts (the Sub-Concentration Accounts ) are used for the Thomasville Depository Accounts and for the showroom Depository Accounts. Funds in the Thomasville Depository Accounts are automatically transferred to the Thomasville Sub- Concentration Account on a daily basis with respect to the Depository Accounts held at PNC and on a monthly basis with respect to the Depository Accounts held at Wells Fargo. Funds in the showroom Depository Accounts are automatically transferred daily to the showroom Sub- Concentration Account. 9. All of the Depository Accounts and Sub-Concentration Accounts are zero balance accounts (each, a ZBA ), which allow the money deposited into such accounts to ultimately be swept into the Debtors master concentration ZBA (Bank Account *7062) (the Master Concentration Account ) at PNC. 10. The Master Concentration Account serves as the ultimate collection point for all funds moved into and through the Cash Management System. Funds for non-debtor Intercompany Transactions (as defined below) are manually funded from the Master Concentration Account as needed and all other funds are automatically swept on a daily basis to the master operating ZBA (Bank Account *7064) (the Master Operating Account ) for the general disbursement needs of the business. The Master Operating Account also is used to fund intercompany disbursements. 4 3 The Debtors maintain a Depository Account with Wells Fargo for their Thomasville retail stores in Minnesota where PNC does not have a presence. The Debtors use those Bank Accounts solely to deposit cash generated from sales at those retail stores. 4 Until June 25, 2018, the Master Concentration Account was utilized for this purpose. 0123359526.4 4
Case 18-11736 Doc 8 Filed 07/29/18 Page 5 of 35 11. Funds in the Master Operating Account are automatically transferred to a number of specialized disbursement accounts for operating expenses, capital expenditures, and employee-related expenses, including payroll, payroll-withholding, and workers compensation payments (collectively, the Disbursement Accounts ). Disbursements are usually made through check, wire transfers, and automated clearing house transfers. 12. In June 2018, the lenders under the Debtors prepetition ABL facility (the ABL Lenders ) subjected the Debtors to a cash-dominion structure, whereby all cash held at PNC in the Master Concentration Account is swept up on a daily basis into an account maintained by the agent for the ABL Lenders. In this cash-dominion structure, the Debtors are required to reborrow cash from the ABL Lenders on an as-needed basis to make disbursements out of the Master Operating Account. III. Intercompany Transactions 13. Prior to the Petition Date, in the ordinary course of their business, the Debtors engaged in intercompany transactions and transfers between themselves and between themselves and their non-debtor affiliates (the Intercompany Transactions ). The Intercompany Transactions may result in intercompany receivables and payables (the Intercompany Claims ). 14. In the ordinary course of business, the Debtors regularly participate in ordinary course trade transactions with their foreign non-debtor affiliates (the Foreign Affiliates ). The Foreign Affiliates are either directly involved in manufacturing products for sale by the Debtors, or they act in a sourcing and quality control capacity to manage the Debtors supply of goods and services from third-party foreign vendors. These supply efforts are directly responsible for a substantial portion of the merchandise the Debtors sell in the United States. Accordingly, the Intercompany Transactions between the Debtors and the Foreign Affiliates are critical to the Debtors global operations and the preservation of the Debtors going-concern value. 0123359526.4 5
Case 18-11736 Doc 8 Filed 07/29/18 Page 6 of 35 15. Because the Foreign Affiliates supply the Debtors with essential manufacturing goods and services, the Foreign Affiliates will invoice the Debtors for those goods and services. The Debtors, in turn, pay for those products, subject to payment terms that represent the actual cost of those goods and services plus a small markup that enables the Foreign Affiliates to fund their own operational needs. On a monthly average, the Debtors owe approximately $1.7 million to the Foreign Affiliates on account of services rendered for the Debtors, and for products that are manufactured overseas and then shipped to the United States for sale to the Debtors dealers and customers. RELIEF REQUESTED 16. By this Motion, the Debtors seek entry of the Proposed Orders authorizing (i) the Debtors to continue using the Cash Management System; (ii) continuation of Intercompany Transactions in the ordinary course of business and consistent with historical business practices; and (iii) the Debtors to continue using the existing Bank Accounts and check stock. BASIS FOR RELIEF REQUESTED I. The Court Should Authorize the Debtors to Continue Using the Existing Cash Management System. 17. The Debtors maintain an integrated Cash Management System in the ordinary course of their business operations that allows them to effectively and efficiently administer their cash and financial affairs. In addition, the Cash Management System is consistent with those utilized by corporate enterprises comparable to the Debtors in size and complexity. As described herein, any disruption to the Cash Management System would have an immediate adverse impact on the Debtors business and would impair the Debtors ability to successfully administer these chapter 11 cases. It would be time-consuming, difficult, and costly for the Debtors to establish an entirely new system of accounts and a new cash management system, particularly in light of 0123359526.4 6
Case 18-11736 Doc 8 Filed 07/29/18 Page 7 of 35 the international reach of the Debtors business. The attendant delays from revising cash management procedures and redirecting receipts would create unnecessary pressure on the Debtors and their employees while they work to meet the other administrative obligations imposed by chapter 11 of the Bankruptcy Code. In addition, preserving a business as usual atmosphere and avoiding the unnecessary and costly distractions that would inevitably be associated with any substantial disruption in the Cash Management System will facilitate the Debtors efforts in this regard. 18. The Debtors will maintain records of all transfers within the Cash Management System to the same extent they were recorded by the Debtors before the commencement of these chapter 11 cases. As a result, the Debtors will be able to document and record the transactions occurring within the Cash Management System for the benefit of all parties in interest. 19. Allowing the Debtors to utilize the prepetition Cash Management System is entirely consistent with the applicable provisions of the Bankruptcy Code. Section 363(c)(1) of the Bankruptcy Code authorizes a debtor in possession to use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). The purpose of section 363(c)(1) is to provide a debtor in possession with the flexibility to engage in the ordinary transactions required to operate its business without undue oversight by creditors or the court. See, e.g., In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992). Included within the purview of section 363(c) is a debtor s ability to continue the routine transactions necessitated by a debtor s cash management system. Amdura Nat l Distrib. Co. v. Amdura Corp., (In re Amdura Corp.), 75 F.3d 1447, 1453 (10th Cir. 1996). Accordingly, to minimize the disruption caused by these bankruptcy filings and maximize the value of the Debtors estates, the Debtors 0123359526.4 7
Case 18-11736 Doc 8 Filed 07/29/18 Page 8 of 35 request authority to continue to utilize the Cash Management System during the pendency of these chapter 11 cases. 20. Courts in this district have recognized that an integrated cash management system allows efficient utilization of cash resources and recognizes the impracticalities of maintaining separate cash accounts for the many different purposes that require cash. In re Columbia Gas Sys., Inc., 136 B.R. 930, 934 (Bankr. D. Del. 1992), aff d in part and rev d in part, 997 F.2d 1039 (3d Cir. 1993). The Third Circuit has agreed, emphasizing the huge administrative burden and economic inefficiency of requiring affiliated debtors to maintain all accounts separately. Columbia Gas Sys., 997 F.2d at 1061; see also In re Southmark Corp., 49 F.3d 1111, 1114 (5th Cir. 1995) (maintaining an existing cash management system allows a debtor to administer more effectively and efficiently its financial operations and assets ). 21. Courts routinely grant chapter 11 debtors authority to continue utilizing existing cash management systems and treat requests for such authority as a relatively simple matter. In re Baldwin-United Corp., 79 B.R. 321, 327 (Bankr. S.D. Ohio 1987). In addition, courts in this circuit have recognized that allowing a debtor to maintain its existing cash management system is often appropriate. See, e.g., In re Genesis Health Ventures, Inc., 402 F.3d 416, 424 (3d Cir. 2005); In re Kindred Healthcare, Inc., 2003 WL 22327933, at *1 (Bankr. D. Del. Oct. 9, 2003). 22. The Court may also exercise its equitable powers to grant the relief requested herein. Section 105(a) of the Bankruptcy Code empowers the Court to issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). Continuing the Cash Management System without interruption is important 0123359526.4 8
Case 18-11736 Doc 8 Filed 07/29/18 Page 9 of 35 to the success of these chapter 11 cases, and it is well within the Court s equitable power under section 105(a) to approve its continued use. II. The Court Should Authorize Intercompany Transactions to Preserve and Maximize Estate Value. 23. The Debtors engage in usual and customary Intercompany Transactions between themselves and between themselves and their non-debtor affiliates on a regular basis. Because such transactions are common among similar enterprises, the Debtors believe that Intercompany Transactions are ordinary course transactions within the meaning of section 363(c)(1) of the Bankruptcy Code and, thus, do not require the Court s approval. Nonetheless, out of an abundance of caution, the Debtors are seeking express authority to engage in such transactions on a postpetition basis in the ordinary course of the Debtors business. Consistent with their prepetition practices, the Debtors will maintain records of the Intercompany Transactions electronically and be able to ascertain, trace, and account for the Intercompany Transactions. 24. The continuation of the Intercompany Transactions is essential to the Debtors ability to manage their day-to-day operations and execute the Cash Management System. If the Intercompany Transactions were to be discontinued, the Cash Management System and related administrative controls would be disrupted to the detriment of the Debtors, their estates, and their creditors. Further, as described in greater detail in the First Day Declaration, the Debtors are pursuing a section 363 sale of their assets. Continuing the Debtors prepetition practice of Intercompany Transactions with the non-debtor affiliates will preserve the value of the Debtors, and, thus, increase the value that the Debtors can expect to recover through their sale process. Therefore, authorizing the Debtors, in their business judgment, to continue the Intercompany Transactions, in the ordinary course of business and consistent with historical business practices, 0123359526.4 9
Case 18-11736 Doc 8 Filed 07/29/18 Page 10 of 35 will assist the Debtors in fulfilling their fiduciary obligations to maximize the value of their estates for all creditors. 25. To ensure that each individual Debtor will not fund the operation of an affiliated entity at the expense of its own creditors, the Debtors respectfully request that, pursuant to sections 364(b) and 503(b)(1) of the Bankruptcy Code, Intercompany Claims arising after the Petition Date in the ordinary course of business be granted administrative expense status. If the Court authorizes the Debtors to treat Intercompany Claims as administrative expenses, then each entity utilizing funds flowing through the Cash Management System and receiving services through the intercompany arrangements should continue to bear ultimate repayment responsibility for such ordinary course transactions and its relative share of the cost of services provided. 26. Accordingly, the Debtors seek authority to continue the Intercompany Transactions and request, pursuant to sections 503(b)(1) and 364(b) of the Bankruptcy Code, that postpetition Intercompany Claims resulting from the ordinary course Intercompany Transactions be accorded administrative priority. In addition, the Debtors seek authority to continue performing Intercompany Transactions in the ordinary course of business and to honor obligations in connection with the Intercompany Transactions, provided, however, the Debtors are not seeking to make cash payments on account of prepetition Intercompany Claims, absent further Court order. III. Authorization to Maintain and Use Existing Bank Accounts and Check Stock Is Warranted Under the Circumstances. 27. Permitting the Debtors to maintain and use the existing Bank Accounts, and waiving any applicable U.S. Trustee Guidelines, is in the best interests of the Debtors estates, their creditors, and other interested parties. Requiring the Debtors to establish new accounts at 0123359526.4 10
Case 18-11736 Doc 8 Filed 07/29/18 Page 11 of 35 this juncture would create an unnecessary administrative burden and delay the payment of workforce-related obligations and other expenses. The cost and delay associated with opening new accounts would disrupt the Debtors transition into bankruptcy and the interim maintenance of their business. In accordance with existing practices, the Debtors request authority to (i) continue to use and administer the Bank Accounts; (ii) treat the Bank Accounts for all purposes as accounts of the Debtors as debtors in possession; and (iii) conduct all banking transactions by all usual means and debit the Bank Accounts on account of all usual items and payment instructions, including checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or other items presented, issued, or drawn on the Bank Accounts. 28. The Debtors further request that the Banks be authorized to continue to administer, service, and maintain the Bank Accounts in accordance with prepetition practices, without interruption and in the ordinary course of business, and to pay any and all checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or other items presented, issued, or drawn on the Banks Accounts on account of any claim arising (i) on or after the Petition Date or (ii) prior to the Petition Date and otherwise authorized by the Court. The Debtors also seek authority to continue to pay all ordinary course fees and other service charges in accordance with any agreements governing the Bank Accounts, whether arising prepetition or postpetition. 29. The Debtors can achieve the goals of the U.S. Trustee Guidelines without closing the existing Bank Accounts and opening new ones. The Debtors can and will identify all prepetition checks and other forms of payment outstanding on the Petition Date and notify the appropriate Bank not to pay such checks or obligations, unless payment of such obligations has been otherwise authorized by the Court. The systems currently employed by the Debtors and the 0123359526.4 11
Case 18-11736 Doc 8 Filed 07/29/18 Page 12 of 35 Banks are sufficient to ensure that prepetition obligations are not paid improperly. However, to avoid delays in payments to administrative creditors, to ensure a smooth and orderly transition into and out of chapter 11, and to aid the Debtors efforts to preserve and maximize the value of their assets, it is important that the Debtors be permitted to continue to maintain the Bank Accounts with the same account numbers following the commencement of these chapter 11 cases. 30. By preserving business continuity and avoiding disruption and delay to the collection of the Debtors receipts and making of disbursements that would necessarily result from closing the Bank Accounts and opening new accounts, all parties in interest, including employees, vendors, and customers, will be best served. The confusion that would result absent the relief requested herein would ill serve the Debtors chapter 11 efforts. 31. The Debtors further request authority to implement reasonable changes to the Cash Management System as the Debtors may deem necessary or appropriate, including closing any of the Bank Accounts or opening any new accounts wherever the Debtors deem that such accounts are needed or appropriate, provided, that the Debtors will provide notice of the same to the U.S. Trustee and counsel to any official committee appointed in these cases within the fourteen (14) days after such change is made. Any new account that the Debtors open will be with an institution that has executed a Uniform Depository Agreement (a UDA ) with the U.S. Trustee. 32. Furthermore, to minimize administrative expense and delay, the Debtors request authority to continue to use their check stock without reference to their status as debtors in possession. Pursuant to Local Rule 2015-2(a), in the event the Debtors need to purchase new check stock during the pendency of these chapter 11 cases, such check stock will include a 0123359526.4 12
Case 18-11736 Doc 8 Filed 07/29/18 Page 13 of 35 legend referring to the Debtors as Debtors in Possession or DIP. In addition, any electronically produced checks will reflect Debtor in Possession as soon as reasonably practicable following the Petition Date. 33. A failure to permit the Debtors to maintain and utilize the Bank Accounts and continue to use their existing check stock as set forth herein would (i) disrupt the ordinary financial affairs and business operations of the Debtors; (ii) delay the administration of the Debtors estates; (iii) compromise the Debtors internal controls and accounting system; and (iv) require the estates to unnecessarily spend money to set up new systems, open new accounts, and print new checks. Accordingly, the requested relief is warranted under the circumstances. 34. In connection with the foregoing, the Debtors respectfully request that the Court (i) authorize all applicable Banks to receive, process, honor, and pay all checks and transfers issued by the Debtors in accordance with this Motion and pursuant to an order of the Court, without regard to whether any checks or transfers were issued before or after the Petition Date; (ii) provide that all Banks may rely on the representations of the Debtors with respect to whether any check or transfer issued or made by the Debtors before the Petition Date should be honored pursuant to this Motion (such banks and other financial institutions having no liability to any party for relying on such representations by the Debtors provided for herein); and (iii) authorize the Debtors to issue replacement checks or transfers to the extent any checks or transfers that are issued and authorized to be paid in accordance with this Motion are dishonored or rejected by the Banks. SATISFACTION OF BANKRUPTCY RULE 6003 35. Bankruptcy Rule 6003 empowers a court to grant relief within the first twenty-one days after the Petition Date to the extent that relief is necessary to avoid immediate and 0123359526.4 13
Case 18-11736 Doc 8 Filed 07/29/18 Page 14 of 35 irreparable harm. The Debtors submit that the facts described herein demonstrate that the relief requested in this Motion is necessary to avoid immediate and irreparable harm to the Debtors business operations and the value of the Debtors estates, and that Bankruptcy Rule 6003 has been satisfied to permit such payments. WAIVER OF BANKRUPTCY RULES 6004(a) AND (h) 36. To implement the foregoing successfully, the Debtors seek a waiver of the notice requirements under Bankruptcy Rule 6004(a) and the 14-day stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 6004(h). RESERVATION OF RIGHTS 37. Nothing contained herein is intended or should be construed as an admission of the validity of any claim against the Debtors, a waiver of the Debtors rights to dispute any claim, or an approval or assumption of any agreement, contract, or lease under section 365 of the Bankruptcy Code. The Debtors expressly reserve their right to contest any invoice or claim related to the relief requested herein in accordance with applicable law. NOTICE 38. Notice of this Motion will be provided to (i) the Office of the United States Trustee for the District of Delaware; (ii) PNC Bank, National Association, in its capacity as Pre- Petition Agent and DIP Agent; (iii) KPS Special Situations Fund III (A), L.P., in its capacity as Pre-Petition Term Agent; (iv) the parties included on the Debtors consolidated list of thirty (30) largest unsecured creditors, as filed with the Debtors chapter 11 petitions; (v) the Banks; and (vi) those parties who have filed formal requests for notice in these chapter 11 cases pursuant to Bankruptcy Rule 2002. Notice of this Motion and any orders entered hereon will be served in 0123359526.4 14
Case 18-11736 Doc 8 Filed 07/29/18 Page 15 of 35 accordance with Local Rule 9013-1(m). In light of the nature of the relief requested herein, the Debtors submit that no other or further notice is necessary. CONCLUSION WHEREFORE, the Debtors respectfully request entry of the Proposed Orders granting the relief requested herein and such other and further relief as is just and proper. Dated July 29, 2018 Wilmington, Delaware YOUNG CONAWAY STARGATT & TAYLOR, LLP /s/ Jaime Luton Chapman Pauline K. Morgan (No. 3650) Kenneth J. Enos (No. 4544) Jaime Luton Chapman (No. 4936) Ashley E. Jacobs (No. 5635) Shane M. Reil (No. 6195) Rodney Square 1000 North King Street Wilmington, Delaware 19801 Telephone (302) 571-6600 Facsimile (302) 571-1253 Proposed Counsel to the Debtors and Debtors in Possession 0123359526.4 15
Case 18-11736 Doc 8 Filed 07/29/18 Page 16 of 35 EXHIBIT A Proposed Interim Order 0123359526.4
Case 18-11736 Doc 8 Filed 07/29/18 Page 17 of 35 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE --------------------------------------------------------------- x In re HERITAGE HOME GROUP LLC, et al., Debtors. 1 --------------------------------------------------------------- x Chapter 11 Case No. 18-11736 ( ) Jointly Administered RE Docket No. INTERIM ORDER AUTHORIZING (I) CONTINUED USE OF EXISTING CASH MANAGEMENT SYSTEM, (II) CONTINUATION OF INTERCOMPANY TRANSACTIONS, AND (III) CONTINUED USE OF EXISTING BANK ACCOUNTS AND CHECK STOCK Upon the motion (the Motion ) 2 of the Debtors for entry of an interim order authorizing (i) the Debtors to continue using the Cash Management System; (ii) continuation of Intercompany Transactions in the ordinary course of business and consistent with historical business practices; and (iii) the Debtors to continue using the existing Bank Accounts and check stock; and upon the First Day Declaration; and it appearing that this Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, 2012; and it appearing that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A) and this Court may enter a final order consistent with Article III of the United States Constitution; and proper and adequate notice of the Motion and the hearing thereon having been given; and it appearing that no other or further notice being necessary; and it appearing that the 1 The Debtors in these chapter 11 cases, along with the last four digits of each debtor s tax identification number, as applicable, are Heritage Home Group LLC (9506); HH Global II B.V. (0165); HH Group Holdings US, Inc. (7206); HHG Real Property LLC (3221); and HHG Global Designs LLC (1150). The Debtors corporate headquarters is located at 1925 Eastchester Drive, High Point, North Carolina 27265. 2 Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion. 0123426969.3
Case 18-11736 Doc 8 Filed 07/29/18 Page 18 of 35 legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and this Court having determined that the relief sought in the Motion is in the best interests of the Debtors, these estates, their creditors, and other parties in interest; and after due deliberation and sufficient cause appearing therefor, it is hereby ORDERED THAT 1. The Motion is GRANTED, on an interim basis, as set forth herein. 2. Except as otherwise provided herein, the Debtors are authorized and empowered to continue to manage their cash pursuant to the Cash Management System as described in the Motion. 3. The Debtors are authorized to (i) continue to use and administer the Bank Accounts; (ii) treat the Bank Accounts for all purposes as accounts of the Debtors as debtors in possession; and (iii) conduct banking transactions by all usual means, and debit the Bank Accounts on account of all usual items and payment instructions, including checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or other items presented, issued, or drawn on the Bank Accounts. 4. The requirements of the U.S. Trustee Guidelines that the Debtors close all existing bank accounts and open new debtor-in-possession accounts are hereby waived. In addition, the requirements of the U.S. Trustee Guidelines that the Debtors establish specific bank accounts are hereby waived. 5. Except as otherwise expressly provided in this Interim Order, and subject to the protections provided to the Banks in Paragraph 6 of this Interim Order, each Bank is authorized and directed to continue to administer, service, and maintain the Bank Accounts in accordance with prepetition practices, without interruption and in the ordinary course of business, and to pay any and all checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or 0123426969.3 2
Case 18-11736 Doc 8 Filed 07/29/18 Page 19 of 35 other items presented, issued, or drawn on the Bank Accounts on or after the Petition Date if the Debtors have sufficient standing in their credit with such Bank; provided that any payments drawn, issued or made on account of any claim arising prior to the Petition Date will not be honored without direction of the Debtors consistent with terms of a separate order of the Court authorizing such payment. 6. Notwithstanding any other provision of this Interim Order, each Bank is authorized, but not directed, to rely on the representations of the Debtors with respect to whether any check or other transfer drawn or issued by the Debtors prior to the Petition Date should be honored pursuant to this Order, and the Banks shall not have any liability to any party for relying on such representations by the Debtors as provided for herein, and shall not be liable to any party on account of (i) following the Debtors representations, instructions, or presentations as to any order of the Court (without any duty of further inquiry), (ii) honoring of any prepetition checks, drafts, wires, or automated clearing house transfers in a good-faith belief or upon a representation by the Debtors that the Court has authorized such prepetition check, draft, wire, or automated clearing house transfers, or (iii) an innocent mistake made despite implementation of reasonable handling procedures. 7. All deposit agreements, if any, shall continue to govern the relationship between the applicable Debtors and each Bank is authorized to charge, and the Debtors are authorized to continue to pay and honor, both prepetition and postpetition service and other ordinary course fees, costs, charges, and expenses to which such Bank may be entitled in accordance with agreements governing the Bank Accounts. 8. No liens on any of the Bank Accounts granted to any creditors shall take priority over the prepetition and postpetition service and other fees, costs, charges, and expenses to 0123426969.3 3
Case 18-11736 Doc 8 Filed 07/29/18 Page 20 of 35 which the Banks are entitled under the terms and in accordance with their contractual arrangements with the Debtors. 9. The Debtors are authorized to use their checks, substantially in the forms existing immediately prior to the Petition Date, without reference to their status as debtors in possession; provided, in the event that the Debtors need to purchase new check stock during the pendency of these chapter 11 cases, such check stock will include a legend referring to the Debtors as Debtors in Possession or DIP, provided, further, within fourteen (14) days of entry of this Order, the Debtors will update any electronically produced checks to reflect their status as debtors in possession. 10. Nothing contained herein shall prevent the Debtors from opening any additional bank accounts, or closing any Bank Accounts, as they may deem necessary and appropriate, and any other modification to the pre-petition cash management structure to comply with the requirements of the DIP Facility. The Banks are authorized, but not directed, to honor the Debtors request to open or close, as applicable, such accounts, provided, that notice of same shall be given to the U.S. Trustee, counsel to the agent under the DIP Facility, and counsel to any official committee appointed in these cases within the fourteen (14) days after such change is made. Any new account that the Debtors open shall be with an institution that has executed a UDA with the U.S. Trustee. 11. The Debtors are authorized to continue performing Intercompany Transactions in the ordinary course of business and to honor obligations in connection with the Intercompany Transactions, provided, however, there shall be no cash payments on account of prepetition Intercompany Claims absent further Court order. 0123426969.3 4
Case 18-11736 Doc 8 Filed 07/29/18 Page 21 of 35 12. Pursuant to sections 364(b) and 503(b)(1) of the Bankruptcy Code, all postpetition Intercompany Claims shall be accorded administrative expense status. The Debtors shall maintain accurate and detailed records of all transfers, including Intercompany Transactions, so that all transactions may be readily ascertained, traced, recorded properly, and distinguished between prepetition and postpetition transactions. 13. Notwithstanding use of a consolidated Cash Management System, the Debtors shall calculate quarterly fees under 28 U.S.C. 1930(a)(6) based on the disbursements of each Debtor, regardless of which entity pays those disbursements. 14. For Banks at which the Debtors hold Bank Accounts that are party to a UDA with the U.S. Trustee, within fourteen (14) days of entry of this Order, the Debtors shall (i) contact each Bank, (ii) provide each Bank with each of the Debtors employer identification numbers, and (iii) identify each Bank Account held at such Banks as being held by a debtor in possession. For Banks, if any, that are not party to a UDA with the U.S. Trustee, the Debtors shall use their good-faith efforts to cause such Bank to execute a UDA with the U.S. Trustee within forty-five (45) days of the date of entry of this Order. 15. The Debtors and the Banks are hereby authorized to continue to perform pursuant to the terms of any unexpired prepetition cash management agreements that may exist between them, except and to the extent otherwise directed by the terms of this Order and except as amended, modified, or supplemented by agreement between the Debtors and such Bank in the ordinary course of business. Notwithstanding the foregoing or anything in this Order to the contrary, the relief granted by this Order shall not be deemed an assumption or rejection of any contract, including, but not limited to, prepetition cash management agreements, pursuant to section 365 of the Bankruptcy Code. 0123426969.3 5
Case 18-11736 Doc 8 Filed 07/29/18 Page 22 of 35 16. The requirements set forth in Bankruptcy Rule 6003 of the Federal Rules of Bankruptcy Procedure are satisfied by the contents of the Motion. 17. The notice of the relief requested in the Motion satisfies Bankruptcy Rule 6004(a) and, pursuant to Bankruptcy Rule 6004(h), the terms and provisions of this Order shall be immediately effective and enforceable upon its entry. 18. A final hearing on the relief sought in the Motion shall be conducted on, 2018 at (ET). The deadline by which objections to entry of the Proposed Final Order must be filed is, 2018 at 400 p.m. (ET). Objections, if any, must be filed and served on (i) proposed counsel to the Debtors, Young Conaway Stargatt & Taylor, LLP, Rodney Square, 1000 North King Street, Wilmington, Delaware 19801, Attn Kenneth J. Enos, Esq. (kenos@ycst.com) and Jaime Luton Chapman, Esq. (jchapman@ycst.com); (ii) the Office of the United States Trustee for the District of Delaware, 844 King Street, Suite 2207, Wilmington, Delaware, 19801, Attn Linda Richenderfer, Esq. (linda.richenderfer@usdoj.gov); (iii) counsel to the Pre-Petition Agent and DIP Agent, Blank Rome LLP, 1201 North Market Street #800, Wilmington, Delaware 19801, Attn Regina Kelbon, Esq. (kelbon@blankrome.com) and Stanley B. Tarr, Esq. (Tarr@BlankRome.com); (iv) counsel to the Pre-Petition Term Agent, Cozen O Connor, 1201 North Market Street, Suite 1001, Wilmington, Delaware 19801, Attn Mark Felger, Esq. (mfelger@cozen.com) and Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019, Attn Jeffrey D. Saferstein, Esq. (JSaferstein@paulweiss.com), Jacob A. Adlerstein, Esq. (JAdlerstein@paulweiss.com), and Sarah Harnett, Esq. (SHarnett@paulweiss.com); and (v) counsel to any statutory committee appointed in these chapter 11 cases. If no objections to 0123426969.3 6
Case 18-11736 Doc 8 Filed 07/29/18 Page 23 of 35 entry of the Proposed Final Order are timely filed, this Court may enter the Proposed Final Order without further notice or a hearing. 19. This Court retains jurisdiction with respect to all matters arising from or related to the implementation of this Order. Dated, 2018 Wilmington, Delaware United States Bankruptcy Judge 0123426969.3 7
Case 18-11736 Doc 8 Filed 07/29/18 Page 24 of 35 EXHIBIT B Proposed Final Order 0123359526.4
Case 18-11736 Doc 8 Filed 07/29/18 Page 25 of 35 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ---------------------------------------------------------------x In re HERITAGE HOME GROUP LLC, et al., Debtors. 1 ---------------------------------------------------------------x Chapter 11 Case No. 18-11736 ( ) Jointly Administered RE Docket Nos. FINAL ORDER AUTHORIZING (I) CONTINUED USE OF EXISTING CASH MANAGEMENT SYSTEM, (II) CONTINUATION OF INTERCOMPANY TRANSACTIONS, AND (III) CONTINUED USE OF EXISTING BANK ACCOUNTS AND CHECK STOCK Upon the motion (the Motion ) 2 of the Debtors for entry of an order authorizing (i) the Debtors to continue using the Cash Management System; (ii) continuation of Intercompany Transactions in the ordinary course of business and consistent with historical business practices; and (iii) the Debtors to continue using the existing Bank Accounts and check stock; and upon the First Day Declaration; and it appearing that this Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, 2012; and it appearing that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A) and this Court may enter a final order consistent with Article III of the United States Constitution; and proper and adequate notice of the Motion and the hearing thereon having been given; and it appearing that no other or further notice being necessary; and it appearing that the legal and factual bases set forth in the 1 The Debtors in these chapter 11 cases, along with the last four digits of each debtor s tax identification number, as applicable, are Heritage Home Group LLC (9506); HH Global II B.V. (0165); HH Group Holdings US, Inc. (7206); HHG Real Property LLC (3221); and HHG Global Designs LLC (1150). The Debtors corporate headquarters is located at 1925 Eastchester Drive, High Point, North Carolina 27265. 2 Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion. 0123454073.1
Case 18-11736 Doc 8 Filed 07/29/18 Page 26 of 35 Motion establish just cause for the relief granted herein; and this Court having determined that the relief sought in the Motion is in the best interests of the Debtors, these estates, their creditors, and other parties in interest; and after due deliberation and sufficient cause appearing therefor, it is hereby ORDERED THAT 1. The Motion is GRANTED, on a final basis, as set forth herein. 2. Except as otherwise provided herein, the Debtors are authorized and empowered to continue to manage their cash pursuant to the Cash Management System as described in the Motion. 3. The Debtors are authorized to (i) continue to use and administer the Bank Accounts; (ii) treat the Bank Accounts for all purposes as accounts of the Debtors as debtors in possession; and (iii) conduct banking transactions by all usual means, and debit the Bank Accounts on account of all usual items and payment instructions, including checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or other items presented, issued, or drawn on the Bank Accounts. 4. The requirements of the U.S. Trustee Guidelines that the Debtors close all existing bank accounts and open new debtor-in-possession accounts are hereby waived. In addition, the requirements of the U.S. Trustee Guidelines that the Debtors establish specific bank accounts are hereby waived. 5. Except as otherwise expressly provided in this Order, and subject to the protections provided to the Banks in Paragraph 6 of this Order, each Bank is authorized and directed to continue to administer, service, and maintain the Bank Accounts in accordance with prepetition practices, without interruption and in the ordinary course of business, and to pay any and all checks, drafts, wires, automated clearinghouse transfers, electronic funds transfers, or 0123454073.1 2
Case 18-11736 Doc 8 Filed 07/29/18 Page 27 of 35 other items presented, issued, or drawn on the Bank Accounts on or after the Petition Date if the Debtors have sufficient standing in their credit with such Bank; provided that any payments drawn, issued or made on account of any claim arising prior to the Petition Date will not be honored without direction of the Debtors consistent with terms of a separate order of the Court authorizing such payment. 6. Notwithstanding any other provision of this Order, each Bank is authorized, but not directed, to rely on the representations of the Debtors with respect to whether any check or other transfer drawn or issued by the Debtors prior to the Petition Date should be honored pursuant to this Order, and the Banks shall not have any liability to any party for relying on such representations by the Debtors as provided for herein, and shall not be liable to any party on account of (i) following the Debtors representations, instructions, or presentations as to any order of the Court (without any duty of further inquiry), (ii) honoring of any prepetition checks, drafts, wires, or automated clearing house transfer in a good-faith belief or upon a representation by the Debtors that the Court has authorized such prepetition check, draft, wire, or automated clearing house transfers, or (iii) an innocent mistake made despite implementation of reasonable handling procedures. 7. All deposit agreements, if any, shall continue to govern the relationship between the applicable Debtors and each Bank is authorized to charge, and the Debtors are authorized to continue to pay and honor, both prepetition and postpetition service and other ordinary course fees, costs, charges, and expenses to which such Bank may be entitled in accordance with agreements governing the Bank Accounts. 8. No liens on any of the Bank Accounts granted to any creditors shall take priority over the prepetition and postpetition service and other fees, costs, charges, and expenses to 0123454073.1 3
Case 18-11736 Doc 8 Filed 07/29/18 Page 28 of 35 which the Banks are entitled under the terms and in accordance with their contractual arrangements with the Debtors. 9. The Debtors are authorized to use their checks, substantially in the forms existing immediately prior to the Petition Date, without reference to their status as debtors in possession; provided, in the event that the Debtors need to purchase new check stock during the pendency of these chapter 11 cases, such check stock will include a legend referring to the Debtors as Debtors in Possession or DIP, provided, further, that any electronically produced checks shall reflect the Debtors status as debtors in possession. 10. Nothing contained herein shall prevent the Debtors from opening any additional bank accounts, or closing any Bank Accounts, as they may deem necessary and appropriate, and any other modification to the pre-petition cash management structure to comply with the requirements of the DIP Facility. The Banks are authorized, but not directed, to honor the Debtors request to open or close, as applicable, such accounts, provided, that notice of same shall be given to the U.S. Trustee, counsel to the agent under the DIP Facility, and counsel to any official committee appointed in these cases within the fourteen (14) days after such change is made. Any new account that the Debtors open shall be with an institution that has executed a UDA with the U.S. Trustee. 11. The Debtors are authorized to continue performing Intercompany Transactions in the ordinary course of business and to honor obligations in connection with the Intercompany Transactions, provided, however, there shall be no cash payments on account of prepetition Intercompany Claims absent further Court order. 12. Pursuant to sections 364(b) and 503(b)(1) of the Bankruptcy Code, all postpetition Intercompany Claims shall be accorded administrative expense status. The Debtors shall 0123454073.1 4
Case 18-11736 Doc 8 Filed 07/29/18 Page 29 of 35 maintain accurate and detailed records of all transfers, including Intercompany Transactions, so that all transactions may be readily ascertained, traced, recorded properly, and distinguished between prepetition and postpetition transactions. 13. Notwithstanding use of a consolidated Cash Management System, the Debtors shall calculate quarterly fees under 28 U.S.C. 1930(a)(6) based on the disbursements of each Debtor, regardless of which entity pays those disbursements. 14. For Banks, if any, that are not party to a UDA with the U.S. Trustee, the Debtors shall use their good-faith efforts to cause such Bank to execute a UDA with the U.S. Trustee within forty-five (45) days of the date of entry of the Interim Order. 15. The Debtors and the Banks are hereby authorized to continue to perform pursuant to the terms of any unexpired prepetition cash management agreements that may exist between them, except and to the extent otherwise directed by the terms of this Order and except as amended, modified, or supplemented by agreement between the Debtors and such Bank in the ordinary course of business. Notwithstanding the foregoing or anything in this Order to the contrary, the relief granted by this Order shall not be deemed an assumption or rejection of any contract, including, but not limited to, prepetition cash management agreements, pursuant to section 365 of the Bankruptcy Code. 16. The notice of the relief requested in the Motion satisfies Bankruptcy Rule 6004(a) and, pursuant to Bankruptcy Rule 6004(h), the terms and provisions of this Order shall be immediately effective and enforceable upon its entry. 0123454073.1 5