GRAND RAPIDS — With all of its retail outlets now closed, Grand Rapids-based sporting goods retailer MC Sports appears to have entered a new chapter in its three-month-old federal bankruptcy.
The United States Trustee in Grand Rapids today filed a motion in the U.S. Bankruptcy Court for the Western District of Michigan to either convert the case from a Chapter 11 bankruptcy to a Chapter 7 bankruptcy or to dismiss the case altogether.
Bankruptcy experts contacted for this report noted that a dismissal would be unlikely as it means that MC Sports would no longer enjoy the protections granted to it under the bankruptcy code.
A conversion to Chapter 7, however, would offer myriad benefits to the various creditors in the ongoing case. In a Chapter 7 bankruptcy, a company ceases all operations as it goes out of business and allows the Trustee to sell any remaining assets with the proceeds paid to secured creditors.
“It’s the Trustee doing his job and doing it correctly,” Robb Wardrop, a bankruptcy attorney at Grand Rapids-based Wardrop & Wardrop PC, said of the motion filed today. “It’s the right thing to do and it’s in the best interest of the creditors.”
Assistant U.S. Trustee Matt Cheney did not immediately respond to a request for comment.
Should Judge John T. Gregg agree to convert the case to Chapter 7, it would allow for the Trustee’s office to sell any remaining assets such as intellectual property, Wardrop said.
Wardrop represents some of MC Sports’ former landlords in the case.
The retailer has rejected all of its leases and closed all 68 of its stores around the Midwest earlier in May.
MC Sports ended April with an operating loss of more than $6 million and it's expected that there will be further downward adjustments to the final cash flow forecast, according to court documents.
“(MC Sports) is trying to manage its budget forecasts to keep the bottom line positive,” the U.S. Trustee wrote. “However, the trend line downward is unmistakable.”
The Trustee’s office noted throughout the motion that most of MC Sports’ inventory and major assets have been liquidated and the likely secondary insolvency now exists within the remaining administrative side of the business.
Wardrop told MiBiz that MC Sports’ only remaining lease is at a downsized corporate headquarters on Shaffer Avenue in Grand Rapids. That lease is expected to expire later this summer.
MC Sports initially filed for Chapter 11 bankruptcy in February, citing weak Black Friday sales. The company expressed a desire at the time to immediately begin liquidating stores while at the same, hoping to attract a buyer for parts of its business.
An attorney for MC Sports did not respond to a request for comment as this report was published.
An official with Judge Gregg’s office declined to comment on how the court may proceed with the motion to convert to Chapter 7, however a hearing for a variety of motions related to the MC Sports case is scheduled for the morning of June 1.