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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Furniture Retailer, Carl’s Patio, Files for Bankruptcy in Delaware

Posted in Bankruptcy Case Summaries

Introduction

On January 21, 2013, Carl’s Patio, Inc., and various related entities, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the district of Delaware. Carl’s Patio started in 1993 and describes itself in court filings as “one of the leading retailer merchandisers of upscale outdoor furniture and accessories in the country.” See Declaration in Support of Chapter 11 Petitions (the “Decl.”) at *2.  At the height of operations, the company operated retail locations in both California and Florida. However, prior to filing for bankruptcy, the Debtor closed five of its underperforming stores in California and four in Florida. The company currently operates ten retail stores and a warehouse in South Florida. Decl. at *4. Aside from retail locations, Carl’s Patio also sells its products online. Decl. at *5. 

 

Events Leading to Bankruptcy

 

Carl’s Patio sells products under its own private label – the “Fifth and Shore line,” as well as offering nationally branded merchandise. Although Carl’s sells national brands at a higher price point, the company enjoys a greater profit margin from its recently introduced private label. According to the company, it was the introduction of its private label which attributed to its net loss in sales for 2012. Specifically, in fiscal year 2011, Carl’s Patio generated a net income of $912,324 against sales of $34.3 million. In fiscal year 2012, however, the company generated a net loss of $1.8 million against sales of $29.9 million. This loss, according to the Declaration, was due “primarily to launching more collections in the Debtors’ Fifth & Shore private brand line than were necessary.” Decl. at *6.

 

In addition to excessive inventory, the Debtor also attributes its bankruptcy filing to the economic downturn in general as well as “unsuccessful strategic initiatives” aggravated by poor marketing and increased competition. Decl. at *10. In order to keep their doors open, the Debtor has had to rely on existing debt facilities and extending trade payables. Id. It was under these circumstances in which the company decided to hire outside restructuring professionals.

 

Marketing Efforts

 

As part of its restructuring efforts, Carl’s Patio approached potential purchasers who might be interested in buying the company.  In October, Weinberg Capital submitted a letter of intent to purchase the company as a going concern.  Decl. at *12. The parties executed a draft purchase agreement in December of 2012 wherein they agreed to a "stalking horse" purchase price of $4.1 million.  Decl. at *13. As stated in its Declaration, Carl’s Patio believes the company cannot continue with operations without either a sale of its business or other restructuring. Decl. at *15. 

 

The Carl’s Patio bankruptcy is before Judge Kevin Gross.  Judge Gross is Chief Judge of the Delaware Bankruptcy Court.  Carl’s Patio is represented by the law firm Bayard, P.A.

 

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?