Paper Zone Bankruptcy Update
June has been a busy month for the bankruptcy court handling the Chapter 11 process for the Paper Zone stores, based in Seattle.
On June 5th, the company filed a petition with the court basically seeking to allow the sale of the company's assets free and clear of any debt to the company's major secured creditor, Intracorp. For those who may have forgotten, Intracorp also happens to be the parent company of Paper Zone's parent company, and thus is considered an "insider" in the bankruptcy process. This would leave the unsecured creditors receiving nothing but satisfy the secured debt. The filing stated that the company could not maintain operations much longer without damaging the collateral value of the company's assets.
A flurry of court filings followed the sale request to the court. West Coast Paper's representative resigned from the Unsecured Creditors Committee to possibly enter their own bid to purchase the company's assets. They also filed an objection to the bid procedures that Paper Zone was seeking to have approved by the court for the sale to Intracorp. An objection to those bid procedures was also filed by the landlord who holds the leases on four of the ten retail store locations. Both filings objected, among other things, to the formulation of the bid procedures seemingly favoring a sale to Intracorp, a Paper Zone insider.
This proposed insider sale also was objected to by the Unsecured Creditors Committee, since the proposal included no compensation for the unsecured creditors. The committee objected to the apparent conflict of interest in management at Paper Zone arranging the sale to Intracorp, and filed a court motion requesting a Bankruptcy Trustee be appointed to manage the company's affairs. This motion was granted on Friday, June 22nd, and Richard Hooper of Pivotal Solutions, Inc. has been ordered hired by the court as "Special Restructuring Officer" to manage all affairs relating to potential sales of Paper Zone's assets.
May's financial reports for the stores have also been filed with the courts. Although they were well within the forecasts set by the courts when the company entered bankruptcy, the stores are still operating at a loss. It is the depletion of the company's cash reserves caused by this loss that apparently prompted the attempt to sell the stores to satisfy the debt.
