Case 18-11736-KG Doc 396 Filed 10/24/18 Page 1 of 10 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 (KG) Jointly Administered Hearing Date November 14, 2018 at 200 p.m. (ET) Objection Deadline November 7, 2018 at 400 p.m. (ET) DEBTORS MOTION FOR AN ORDER, PURSUANT TO SECTION 365(d)(4) OF THE BANKRUPTCY CODE, EXTENDING THE DEADLINE BY WHICH THE DEBTORS MUST ASSUME OR REJECT UNEXPIRED LEASES OF NON-RESIDENTIAL REAL PROPERTY The above-captioned debtors and debtors in possession (each, a Debtor, and collectively, the Debtors ) submit this motion (the Motion ) for entry of an order, substantially in the form attached hereto as Exhibit A (the Proposed Order ), pursuant to section 365(d)(4) of title 11 of the United States Code (the Bankruptcy Code ), granting the Debtors a ninety (90) day extension, through and including February 25, 2019, of the statutory deadline by which the Debtors must assume or reject each of the leases, subleases, and other agreements under which any Debtor is a lessee, as applicable, and that may be considered unexpired leases of nonresidential real property under applicable law (collectively, the Real Property Leases, and the lessors thereunder, collectively, the Lessors ). In support of this Motion, the Debtors respectfully represent as follows 0123666825.2 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-KG Doc 396 Filed 10/24/18 Page 2 of 10 JURISDICTION AND VENUE 1. The United States Bankruptcy Court for the District of Delaware (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 (the Amended Standing Order ). This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2), and, pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware, 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 predicate for the relief requested herein is section 365(d)(4) of the Bankruptcy Code. BACKGROUND A. General Background 4. On July 29, 2018 (the Petition Date ), each of the Debtors filed with the Court a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The cases are being jointly administered pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 5. On August 8, 2018, the Office of the United States Trustee for the District of Delaware (the U.S. Trustee ) appointed an official committee of unsecured creditors in these 0123666825.2 2
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 3 of 10 chapter 11 cases (the Committee ). No trustee or examiner has been appointed in these chapter 11 cases. 6. Information regarding the Debtors businesses, capital structure, and the circumstances leading to these chapter 11 cases is set forth in the Declaration of Robert D. Albergotti in Support of Chapter 11 Petitions and First-Day Motions [Docket No. 12]. B. The Debtors Sale Efforts 7. As set forth in the First Day Declaration, the Debtors paramount goal in these chapter 11 cases is to maximize the value of their estates for the benefit of the Debtors creditor constituencies and other stakeholders through the sale of the Debtors business units and remaining assets (collectively, the Assets ). In furtherance of their sale efforts, on the Petition Date, the Debtors filed a motion [Docket No. 13] seeking approval of, among other things, the sale of the Hickory Chair, Pearson, Maitland-Smith, and La Barge brands (the Luxury Group ). On September 26, 2018, the Court entered an order [Docket No. 324] approving the sale of the Luxury Group (the Luxury Group Sale ) to Hickory Chair, LLC (the Luxury Group Purchaser ). The Debtors assumed and assigned certain Real Property Leases to the Luxury Group Purchaser in connection with the Luxury Group Sale, which sale closed on October 12, 2018. 8. In addition, on August 31, 2018, the Debtors filed a motion [Docket No. 217] seeking approval of, among other things, the sale of the intellectual property assets and other remaining assets related to the Debtors business of designing, manufacturing, sourcing, licensing, and selling home furnishings under the Broyhill, Thomasville, Drexel, Drexel Heritage, and Henredon brands (the Non-Luxury Group ). On October 23, 2018, the Court 0123666825.2 3
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 4 of 10 entered orders [Docket Nos. 392 395] approving the sale (the Non-Luxury Group Sales ) of the Non-Luxury Group s intellectual property assets and certain non-intellectual property assets. 9. Finally, the Debtors determined to initiate an inventory sale process that includes store closing and similarly themed sales (the Inventory Sales ) at their Non-Luxury Group retail locations and distribution centers (collectively, the Sale Locations ) to best maximize the value of the estates for the benefit of all creditors. On August 31, 2018, the Debtors filed a motion [Docket No. 219] (the Inventory Sale Motion ) pursuant to which, among other things, the Debtors sought authority to conduct the Inventory Sales at the Sale Locations through December 31, 2018, subject to mutual agreement to extend such date. The Court entered interim [Docket No. 278] and final [Docket No. 335] orders on September 13, 2018 and September 28, 2018, respectively, approving the relief requested in the Inventory Sale Motion. RELIEF REQUESTED 10. Pursuant to section 365(d)(4) of the Bankruptcy Code, a debtor has an initial 120- day period following the filing of a bankruptcy petition in which to elect to assume or reject unexpired leases of non-residential real property under which the debtor is a lessee. See 11 U.S.C. 365(d)(4). Section 365(d)(4)(B) of the Bankruptcy Code provides, however, that, upon on a motion by the debtor, the Court may extend the initial 120-day deadline by 90 days for cause. See 11 U.S.C. 365(d)(4)(B). Any subsequent extensions of the deadline to assume or reject unexpired leases of non-residential real property under which the debtor is a lessee may only be granted with the prior written consent of the affected lessors. See 11 U.S.C. 365(d)(4)(B)(ii). Under section 365(d)(4) of the Bankruptcy Code, if the debtor fails to assume or reject an unexpired lease of non-residential real property under which the debtor is a lessee 0123666825.2 4
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 5 of 10 prior to the applicable deadline, such lease will automatically be deemed rejected. See 11 U.S.C. 365(d)(4)(A). 11. Pursuant to section 365(d)(4) of the Bankruptcy Code, the Debtors initially have until November 26, 2018, to assume or reject the Real Property Leases (the Assumption/Rejection Period ). 12. By this Motion, the Debtors request entry of the Proposed Order, extending the Assumption/Rejection Period by ninety (90) days, through and including February 25, 2019, 2 pursuant to section 365(d)(4) of the Bankruptcy Code. Such an extension would be without prejudice to the Debtors rights, pursuant to section 365(d)(4)(B)(ii) of the Bankruptcy Code, to request a further extension of the Assumption/Rejection Period with the consent of the affected Lessor(s). BASIS FOR RELIEF REQUESTED 13. The Debtors submit that ample cause exists to extend the Assumption/Rejection Period as requested herein. On the Petition Date, the Debtors were parties to a number of Real Property Leases, each of which holds potential value to the estates and, by extension, all interested parties. For the reasons set forth below, the Debtors have not had sufficient time to determine whether each of the Real Property Leases should ultimately be assumed or rejected. The requested extension of the Assumption/Rejection Period is consistent with the rehabilitative goals of the Bankruptcy Code and will not unduly prejudice any of the Lessors for the reasons described below. 14. Since the commencement of these chapter 11 cases, the Debtors management and professional advisors have devoted a significant amount of effort towards ensuring a smooth 0123666825.2 2 Ninety (90) days after the Assumption/Rejection Period falls on Sunday, February 24, 2019. Pursuant to Bankruptcy Rule 9006, the next business day for the purposes of establishing the new Assumption/Rejection Period is Monday, February 25, 2019. 5
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 6 of 10 transition of the Debtors operations into chapter 11 and maximizing the value of the Debtors estates for the benefit of all stakeholders. In the approximately three months that these chapter 11 cases have been pending, the Debtors have, among other things (i) marketed the Assets and obtained approval of the Luxury Group Sale and the Non-Luxury Group Sales; (ii) obtained approval of the Inventory Sale Motion over the objection filed by the U.S. Trustee; (iii) commenced Inventory Sales at the Sale Locations; (iv) prepared and filed their Schedules of Assets and Liabilities and Statements of Financial Affairs; (v) responded to various creditor inquiries and demands; (vi) retained professionals; (vii) worked feverishly to stabilize the Debtors vendor base; (viii) evaluated and resolved requests for additional adequate assurance of future payment from certain utility providers; (ix) resolved various objections to entry of a final order authorizing the Debtors to obtain post-petition financing and use cash collateral; and (x) handled the various other tasks related to the administration of the Debtors bankruptcy estates and these chapter 11 cases. Finally, since their appointment, the Debtors have worked diligently to get the Committee up to speed on these chapter 11 cases. 15. The Debtors have been evaluating their contracts and leases, including the Real Property Leases, including in connection with the Luxury Group and Non-Luxury Group Sales. As a result of these efforts, the Debtors have assumed and assigned certain Real Property Leases to the Luxury Group Purchaser. The Debtors are continuing to review all of their remaining executory contracts and unexpired leases, including the Real Property Leases, as part of the overall resolution of these chapter 11 cases. Nonetheless, the Debtors have not had sufficient time to fully review all of the Real Property Leases to determine which leases should be assumed or rejected at this juncture. 0123666825.2 6
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 7 of 10 16. The Third Circuit Court of Appeals has recognized that nothing prevents a bankruptcy court from granting an extension because a particular debtor needs additional time to determine whether the assumption or rejection of particular leases is called for by the plan of reorganization that it is attempting to develop. In re Channel Home Ctrs., Inc., 989 F.2d 682, 689 (3rd Cir. 1993). As the bankruptcy court in one frequently-cited decision observed, there are essentially three factors that are weighed by the courts in determining whether cause exists to extend the deadline to assume or reject unexpired leases of non-residential real property (i) (ii) (iii) whether the leases are an important asset of the estate such that the decision to assume or reject would be central to any plan of reorganization that may be proposed by the debtor; whether the case is complex and involves large numbers of leases; and whether or not the debtor has had sufficient time to intelligently appraise the value of each lease for purposes of a plan of reorganization. In re Wedtech Corp., 72 B.R. 464, 471 72 (Bankr. S.D.N.Y. 1987); accord Channel Home Ctrs., 989 F.2d at 689 (noting that it is permissible for a bankruptcy court to consider a particular debtor s need for more time in order to analyze leases in light of the plan it is formulating ). 17. The Debtors submit that the Wedtech factors are satisfied in these chapter 11 cases. First, until the Debtors, in their business judgment, determine otherwise, the Real Property Leases are important assets of the Debtors estates, and therefore the decision to assume or reject the Real Property Leases is necessarily of central importance to the Debtors efforts to maximize the value of their estates for the benefit of all stakeholders. As a result, the Debtors must be allowed sufficient time to determine which of the Real Property Leases should be assumed. 0123666825.2 7
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 8 of 10 18. Second, these chapter 11 cases are unquestionably large and complex, and therefore have required and will continue to require the Debtors to devote a significant amount of time, energy, and resources to various other tasks. 19. Finally, evaluating each of the Real Property Leases and determining whether they should ultimately be assumed or rejected is itself a substantial and time-consuming task. Given the volume of other tasks required of the Debtors personnel and professional advisors in connection with the commencement of these chapter 11 cases, the Debtors submit that they require, and would benefit from, the maximum amount of time to carefully evaluate each of the Real Property Leases. Although the Debtors have begun their review of the Real Property Leases, an extension of the Assumption/Rejection Period is necessary to allow the Debtors sufficient time to fully evaluate all of the Real Property Leases and to, among other things, afford the Debtors flexibility in prosecuting these chapter 11 cases. 20. Given the Debtors need for flexibility in prosecuting these chapter 11 cases, circumstances may arise during the pendency of these cases that would cause the Debtors to reevaluate the need to continue leasing a particular property. In the absence of an extension of the current Assumption/Rejection Period, the Debtors could be forced to prematurely assume Real Property Leases that may later prove to be burdensome, which could give rise to large administrative expense claims against the Debtors estates and hamper the Debtors ability to successfully prosecute these chapter 11 cases. Alternatively, the Debtors could be forced to prematurely reject certain Real Property Leases that ultimately could have benefited the Debtors estates. Among other things, the extension requested herein will decrease the risk of such negative outcomes for the Debtors estates and will, therefore, benefit all stakeholders. 0123666825.2 8
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 9 of 10 21. Furthermore, there should be no prejudice to the Lessors as a result of the requested extension of the Assumption/Rejection Period. Pending their election to assume or reject the Real Property Leases, the Debtors will continue to perform their undisputed obligations arising from and after the Petition Date in a timely fashion and as required by the Bankruptcy Code. As a result, the requested extension will afford the Debtors maximum flexibility, without prejudicing the rights of the Lessors. 22. Accordingly, the Debtors submit that the requested extension of the Assumption/Rejection Period should be granted. NOTICE 23. Notice of this Motion will be provided to (i) the U.S. Trustee; (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) counsel to the Committee; (v) the Lessors; and (vi) those parties who have filed formal requests for notice in these chapter 11 cases pursuant to Bankruptcy Rule 2002. The Debtors respectfully submit that, in light of the nature of the relief requested, no other or further notice need be given. 0123666825.2 9
Case 18-11736-KG Doc 396 Filed 10/24/18 Page 10 of 10 CONCLUSION WHEREFORE, the Debtors request that the Court enter the Proposed Order, granting the relief requested herein and such other and further relief as is just and proper. Dated October 24, 2018 Wilmington, Delaware YOUNG CONAWAY STARGATT & TAYLOR, LLP /s/ Ashley E. Jacobs 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 Counsel to the Debtors and Debtors in Possession 0123666825.2 10
Case 18-11736-KG Doc 396-1 Filed 10/24/18 Page 1 of 2 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 (KG) Jointly Administered Hearing Date November 14, 2018 at 200 p.m. (ET) Objection Deadline November 7, 2018 at 400 p.m. (ET) NOTICE OF MOTION TO (I) THE OFFICE OF THE UNITED STATES TRUSTEE FOR THE DISTRICT OF DELAWARE; (II) COUNSEL TO PNC BANK, NATIONAL ASSOCIATION, IN ITS CAPACITY AS PRE-PETITION AGENT AND DIP AGENT; (III) COUNSEL TO KPS SPECIAL SITUATIONS FUND III (A), L.P., IN ITS CAPACITY AS PRE-PETITION TERM AGENT; (IV) COUNSEL TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS; (V) THE LESSORS (AS DEFINED IN THE MOTION); AND (VI) ALL PARTIES WHO HAVE REQUESTED NOTICE IN THESE CHAPTER 11 CASES PURSUANT TO BANKRUPTCY RULE 2002. PLEASE TAKE NOTICE that the above captioned debtors and debtors in possession (collectively, the Debtors ) have filed the attached Debtors Motion for an Order, Pursuant to Section 365(d)(4) of the Bankruptcy Code, Extending the Deadline by Which the Debtors Must Assume or Reject Unexpired Leases of Non-Residential Real Property (the Motion ). PLEASE TAKE FURTHER NOTICE that any objections or responses to the relief requested in the Motion must be filed on or before November 7, 2018 at 400 p.m. (ET) (the Objection Deadline ) with the United States Bankruptcy Court for the District of Delaware, 824 N. Market Street, 3 rd Floor, Wilmington, Delaware 19801. At the same time, copies of any responses or objections to the Motion must be served upon the undersigned counsel to the Debtors so as to be received on or before the Objection Deadline. PLEASE TAKE FURTHER NOTICE THAT A HEARING TO CONSIDER THE MOTION WILL BE HELD ON NOVEMBER 14, 2018 AT 200 P.M. (ET) BEFORE THE HONORABLE KEVIN GROSS IN THE UNITED STATES BANKRUPTCY COURT FOR 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. 0123680700.1
Case 18-11736-KG Doc 396-1 Filed 10/24/18 Page 2 of 2 THE DISTRICT OF DELAWARE, 824 N. MARKET STREET, 6TH FLOOR, COURTROOM NO. 3, WILMINGTON, DELAWARE 19801. PLEASE TAKE FURTHER NOTICE THAT IF NO OBJECTIONS OR RESPONSES TO THE MOTION ARE TIMELY FILED AND RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE COURT MAY GRANT THE RELIEF REQUESTED THEREIN WITHOUT FURTHER NOTICE OR A HEARING. Dated October 24, 2018 Wilmington, Delaware YOUNG CONAWAY STARGATT & TAYLOR, LLP /s/ Ashley E. Jacobs 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 Counsel to the Debtors and Debtors in Possession 0123680700.1
Case 18-11736-KG Doc 396-2 Filed 10/24/18 Page 1 of 3 EXHIBIT A Proposed Order 0123666825.2
Case 18-11736-KG Doc 396-2 Filed 10/24/18 Page 2 of 3 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 (KG) Jointly Administered Ref. Docket No. ORDER, PURSUANT TO SECTION 365(d)(4) OF THE BANKRUPTCY CODE, EXTENDING THE DEADLINE BY WHICH THE DEBTORS MUST ASSUME OR REJECT UNEXPIRED LEASES OF NON-RESIDENTIAL REAL PROPERTY Upon consideration of the motion (the Motion ) 2 filed by the above-captioned debtors and debtors in possession (collectively, the Debtors ) for the entry of an order, pursuant to section 365(d)(4) of the Bankruptcy Code, granting the Debtors an extension, through and including February 25, 2019, of the statutory deadline for the Debtors to assume or reject the Real Property Leases; and the Court having found that it has jurisdiction over this matter pursuant to 28 U.S.C. 1334(b) and 157, and the Amended Standing Order; and this Court having found that venue of these cases and the Motion in this district is proper pursuant to 28 U.S.C. 1408 and 1409; and this Court having found that this matter is a core proceeding pursuant to 28 U.S.C. 157(b); and this Court having found that notice of the Motion has been given as set forth in the Motion and that such notice is adequate and no other or further notice need be given; and this Court having determined that it may enter a final order consistent with 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 ascribed to them in the Motion. 0123666825.2
Case 18-11736-KG Doc 396-2 Filed 10/24/18 Page 3 of 3 Article III of the United States Constitution; and upon consideration of the First Day Declaration; and upon the record of these chapter 11 cases; and this Court having found and determined that the relief sought in the Motion is in the best interests of the Debtors, their estates, their creditors and all other parties in interest; and that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and after due deliberation and sufficient cause appearing therefor, IT IS HEREBY ORDERED THAT 1. The Motion is GRANTED as set forth herein. 2. Pursuant to section 365(d)(4) of the Bankruptcy Code, the deadline under section 365(d)(4) of the Bankruptcy Code for the Debtors to assume or reject the Real Property Leases is hereby extended through and including February 25, 2019 (the Assumption/Rejection Period ). 3. This Order shall be without prejudice to the rights of the Debtors and their estates to seek an extension of the Assumption/Rejection Period with the consent of the affected Lessor(s). 4. To the extent that the Debtors and any Lessor under a Real Property Lease agree to a further extension of the time by which the Debtors must assume or reject an applicable Real Property Lease, the Debtors may submit to this Court a consensual form of order approving such further extension, pursuant to section 365(d)(4)(B)(ii) of the Bankruptcy Code, under certification of counsel without the need for further notice or hearing. 5. This Court shall retain jurisdiction to hear and determine all matters arising from or related to the implementation of this Order. 0123666825.2 2