IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ---x
In re:
COLDWATER CREEK INC., et al.,1 Debtors. : : : : : : : : : Chapter 11 Case No. 14– 10867 (__)
(Joint Administration Requested)
---x
DEBTORS’ MOTION FOR AN ORDER AUTHORIZING THE PAYMENT OF PREPETITION SALES, USE AND OTHER
TAXES AND GOVERNMENT CHARGES
Coldwater Creek Inc., on behalf of itself and its affiliated debtors and debtors in possession in the above-captioned cases (collectively, the “Debtors”), hereby submits this motion (this “Motion”) for entry of an order authorizing, but not directing, the Debtors to pay prepetition sales and use taxes, as well as other governmental charges and assessments, as the Debtors, in their sole discretion, deem necessary. In support of this Motion, the Debtors respectfully represent as follows:
Background
1. On the date hereof (the “Petition Date”), each of the Debtors filed a voluntary petition with the Court for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”). The Debtors continue to operate their business and manage their properties as debtors in possession pursuant to sections 1107 and 1108
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The Debtors in these proceedings (including the last four digits of their respective taxpayer identification numbers) are: Coldwater Creek Inc. (9266), Coldwater Creek U.S. Inc. (8831), Aspenwood Advertising, Inc. (7427), Coldwater Creek The Spa Inc. (7592), CWC Rewards Inc. (5382), Coldwater Creek
Merchandising & Logistics Inc. (3904) and Coldwater Creek Sourcing Inc. (8530). Debtor CWC Sourcing LLC has the following Idaho organizational identification number: W38677. The Debtors’ corporate headquarters is located at One Coldwater Creek Drive, Sandpoint, Idaho 83864.
of the Bankruptcy Code. No trustee or examiner has been appointed in these chapter 11 cases. As of the date hereof, no creditors’ committee has been appointed.
2. The Debtors and their non-debtor affiliate (collectively, “Coldwater”) have operated as a specialty retailer of women’s apparel, jewelry and accessories. Coldwater has been a multi-channel retailer that offers its merchandise through retail stores across the country, its catalog and its e-commerce website, www.coldwatercreek.com. Originally founded in Sandpoint, Idaho in 1984 as a direct, catalog-based marketer, Coldwater evolved into a multi-channel specialty retailer operating 334 premium retail stores, 31 factory outlet stores and seven day spa locations throughout the United States. As of the Petition Date, the Debtors employ 339 full and part-time employees in their corporate headquarters and 5,571 full and part-time
employees in other locations, including their retail stores, spas, design center, call center and distribution center.
3. The Debtors have filed these chapter 11 cases because they have
concluded that they are unable to reorganize on a stand-alone basis. After months of declining sales and failed out-of-court sales and refinancing processes, the Debtors have determined that the best way to maximize value for the benefit of all interested parties is a prompt and orderly wind-down of their business. As more fully discussed in the Declaration of James A. Bell in Support of Voluntary Petitions, First Day Motions and Applications (the “First Day
Declaration”), which was filed contemporaneously with this Motion, the conclusion to liquidate
was reached following a lengthy process in which the Debtors considered and explored all reasonable strategic alternatives. Additional factual background relating to the Debtors’
business, capital structure and the commencement of these chapter 11 cases is set forth in detail in the First Day Declaration and is incorporated herein by reference.
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4. In order to liquidate their business as expeditiously as possible,
contemporaneously with the filing of this Motion, the Debtors have filed the Debtors’ Motion for Orders (I)(A) Authorizing Entry into Agency Agreement, (B) Authorizing Bidding Protections, (C) Authorizing Bidding Procedures and Auction and (D) Scheduling Sale Hearing and Approving Notice Thereof, (II) Authorizing (A) Sale of Assets and (B) Store Closing Sales and (III) Granting Related Relief seeking authority to conduct chain-wide store closing sales and liquidate their inventory. The Debtors believe that commencing store closing sales prior to the Mother’s Day weekend, which historically is a peak sales time for the Debtors, will maximize value for the Debtors’ estates while minimizing the administrative expenses incurred in these chapter 11 cases.
5. Additionally, the Debtors have filed on the date hereof the Debtors’ Joint Plan of Liquidation of Coldwater Creek Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”) and a related Disclosure Statement. The Plan provides for the orderly resolution of the Debtors’ remaining assets following completion of liquidation of their inventory through “going out of business” sales. The Plan is supported by the Debtors’
prepetition secured lenders.
Facts Specific to the Relief Requested
6. In the ordinary course of business, the Debtors incur and remit sales, excise and use taxes (the “Taxes”) 2 monthly on account of business conducted in various states. The Debtors remit those Taxes to the applicable governmental authorities (collectively, the
2
For purposes of this Motion, the term “Taxes” does not include payroll taxes, which are addressed in the
Debtors’ Motion for an Order Authorizing Debtors to: (I) Pay Prepetition Employee and Independent Contract Wages, Salaries and Other Compensation, (II) Reimburse Prepetition Employee Business Expenses, (III) Contribute to Prepetition Employee and Retiree Benefit Programs and Continue Such Programs in the Ordinary Course, (IV) Make Payments for which Prepetition Payroll Deductions Were Made, (V) Pay Workers’ Compensation Obligations and (VI) Pay all Costs and Expenses Incident to the Foregoing, which the Debtors have filed contemporaneously herewith.
“Taxing Authorities”), on periodic bases as required by each Taxing Authority. A list of the Taxing Authorities is set forth in Exhibit A.
Jurisdiction
7. 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. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b). The statutory predicate for the relief requested herein is section 541(d) of the Bankruptcy Code and Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”).
Relief Requested
8. By this Motion, the Debtors respectfully request entry of an order authorizing the Debtors to pay prepetition Taxes.
9. The Taxes are so-called trust fund taxes that the Debtors have collected from their customers for the benefit of, and eventual payment to, the applicable Taxing
Authority. Such trust fund taxes are not property of the Debtors’ estates and the Debtors’ failure to pay them in a timely manner could expose the Debtors’ directors and officers to personal liability which would harm the Debtors’ estates.
10. The Debtors estimate that the total amount of prepetition Taxes accrued and not yet paid to the Taxing Authorities as of the Petition Date is approximately $3,256,000. The Debtors request the authority to pay all such prepetition Taxes in full.
11. The Debtors also request that all applicable banks and other financial institutions be authorized to receive, process, honor and pay all checks presented for payment and to honor all electronic payment requests made by the Debtors related to the prepetition obligations described herein, whether such checks were presented or electronic requests were
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submitted prior to or after the Petition Date. The Debtors further request that all such banks and financial institutions be authorized to rely on the Debtors’ designation of any particular check or electronic payment request as approved pursuant to this Motion.
Basis For Relief
12. The Taxes are trust fund taxes and, accordingly, they are not property of the Debtors’ estates under section 541(d) of the Bankruptcy Code. See In re Am. Int’l Airways, Inc., 70 B.R. 102, 104-05 (Bankr. E.D. Pa. 1987).3 As such, not only do the Debtors lack any justifiable basis for not remitting the Taxes to the Taxing Authorities, but, in addition, in some instances the failure to pay the Taxes could lead to personal liability for the Debtors’ directors and officers. See, e.g., John F. Olson, et al., Director & Officer Liability: Indemnification and Insurance § 3:21 (2003) (observing that “some states hold corporate officers personally liable for any sales tax and penalty owed and not paid by the corporation, regardless of cause”) (citing W. Va. Code § 11-15-17 and Ohio Rev. Code Ann. § 5739.33). Accordingly, the Debtors
respectfully request authority to pay the Taxes at the outset of these cases.
13. The relief that the Debtors seek in this Motion is immediately necessary in order for the Debtors to be able to efficiently liquidate their business and preserve value for their creditors. Accordingly, to the extent that Bankruptcy Rule 6003 is applicable to the relief requested, the Debtors submit that for the reasons set forth herein, the relief requested in this Motion is necessary to avoid immediate and irreparable harm.4 Moreover, the Debtors request
3
Section 541(d) of the Bankruptcy Code provides, in relevant part, that “[p]roperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest . . . becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtors’ legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.” 11 U.S.C. § 541(d).
4
Bankruptcy Rule 6003 provides that “[e]xcept to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, grant relief regarding . . . a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate . . . .”
that the Court waive the stay imposed by Bankruptcy Rule 6004(h), which provides that “[a]n order authorizing the use, sale or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise.”
Reservation of Rights
14. Nothing contained herein is or should be construed as: (a) an admission as to the validity of any claim against the Debtors; (b) a waiver of the Debtors’ right to dispute any claim on any grounds; (c) a promise or requirement to pay any claim; (d) an admission that any particular claim is of a type specified or defined hereunder; (e) a request to assume any executory contract or unexpired lease; or (f) a waiver of the Debtors’ rights under the Bankruptcy Code or any other applicable law.
Notice
15. Notice of this Motion will be provided to: (a) the United States Trustee for the District of Delaware; (b) Kirkland & Ellis LLP, as counsel to the prepetition term loan lenders; (c) Riemer & Braunstein LLP, as counsel to Wells Fargo Bank, National Association; and (d) the 30 largest unsecured creditors of the Debtors, on a consolidated basis. As this Motion is seeking “first-day” relief, within two days of the hearing on this Motion, the Debtors will serve copies of this Motion and any order entered in respect of this Motion as required by Local Rule 9013-1(m). The Debtors respectfully submit that, in light of the nature of the relief requested, no other or further notice need be given.
WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto as Exhibit B, granting the relief requested in the Motion and such other and further relief as may be just and proper.
Dated: Wilmington, Delaware April 11, 2014
Respectfully submitted, SHEARMAN &STERLING LLP
Douglas P. Bartner (Pro Hac Vice Admission Pending) Jill Frizzley (Pro Hac Vice Admission Pending)
599 Lexington Avenue New York, New York 10022 Telephone: (212) 848-4000 Facsimile: (646) 848-8174 -and-
YOUNG CONAWAY STARGATT &TAYLOR,LLP
/S/KENNETH J.ENOS
Pauline K. Morgan (No. 3650) Kenneth J. Enos (No. 4544) 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
EXHIBIT A
Taxing Authorities
Alabama Dept of Revenue Arizona Dept of Revenue Arkansas Dept of Finance Baldwin County
Caddo Shreveport
California Board of Equalization Canadian GST
Centerra Lifestyle Center Centerra Public Improvement City and County of Broomfield City of Auburn
City of Aurora City of Birmingham City of Chandler City of Colorado Springs City of Foley
City of Huntsville City of Lakewood City of Littleton City of Lone Tree City of Loveland City of Mesa City of Mobile City of Montgomery City of Panama City City of Phoenix City of Prescott City of Tucson City of Tuscaloosa Colorado Dept of Revenue Comptroller of Maryland County of Mobile CT Dept of Revenue Florida Dept of Revenue Georgia Dept of Revenue Glendale City Finance AZ Illinois Dept of Revenue Indiana Dept of Revenue Iowa State Treasurer
Jefferson Parish Sheriff's Office Kansas Dept of Revenue
Kentucky State Treasurer Lafayette Parish School Board Madison County
Maine Revenue Services Massachusetts Dept of Revenue Minnesota Dept of Revenue Missouri Dept of Revenue Nebraska Dept of Revenue New Jersey Dept of Taxation New Mexico Tax and Revenue New York Dept of Taxation North Carolina Dept of Revenue Office of State Tax Commissioner Ohio Dept of Taxation
Oklahoma Tax Commission Parish and City Treasurer Parish of Jefferson
Pennsylvania Dept of Revenue Plaza Metropolitan District South Carolina Dept of Revenue South Dakota State Treasurer St Tammany Parish
State of Louisiana State of Michigan State of Nevada State of Rhode Island State Tax Commission Tax Trust Account
Tennessee Dept of Revenue Town of Castle Rock Town of Silverthorne Travis Hulsey
Tuscaloosa County Special Tax Board TX Comptroller
Utah State Tax Commission Vermont Dept of Revenue Virginia Dept of Taxation Washington Dept of Revenue Wisconsin Dept of Revenue WV State Tax Dept
EXHIBIT B
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ---x
In re:
COLDWATER CREEK INC., et al.,1 Debtors. : : : : : : : : : Chapter 11 Case No. 14–10867 (____) (Jointly Administered)
Ref. Docket No. ____
---x
ORDER AUTHORIZING THE PAYMENT OF PREPETITION SALES, USE, AND OTHER TAXES AND GOVERNMENT CHARGES
Upon the motion (the “Motion”)2 of Coldwater Creek Inc., on behalf of itself and its affiliated debtors and debtors in possession in the above-captioned cases (collectively, the “Debtors”), for an order (this “Order”) authorizing, but not directing, the Debtors to pay
prepetition Taxes, all as more fully set forth in the Motion; and upon the Declaration of James A. Bell in Support of Voluntary Petitions, First Day Motions and Applications; and it appearing that this Court has jurisdiction to consider the Motion 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 venue of these chapter 11 cases and the Motion in this District is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and it appearing that this matter is a core proceeding pursuant to 28 U.S.C. § 157(b); and this Court having determined that the relief requested in the Motion is in the best interests of the Debtors,
1
The Debtors in these proceedings (including the last four digits of their respective taxpayer identification numbers) are: Coldwater Creek Inc. (9266), Coldwater Creek U.S. Inc. (8831), Aspenwood Advertising, Inc. (7427), Coldwater Creek The Spa Inc. (7592), CWC Rewards Inc. (5382), Coldwater Creek
Merchandising & Logistics Inc. (3904) and Coldwater Creek Sourcing Inc. (8530). Debtor CWC Sourcing LLC has the following Idaho organizational identification number: W38677. The Debtors’ corporate headquarters is located at One Coldwater Creek Drive, Sandpoint, Idaho 83864.
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their estates, their creditors and other parties-in-interest; and it appearing that proper and
adequate notice of the Motion has been given and that no other or further notice is necessary; and after due deliberation thereon; and good and sufficient cause appearing therefor;
IT IS HEREBY ORDERED THAT:
1. The Motion is GRANTED as set forth herein.
2. The Debtors are authorized to remit any outstanding prepetition Taxes to the Taxing Authorities.
3. The Debtors are authorized and empowered to take all actions necessary to implement the relief granted in this Order.
4. Notwithstanding anything to the contrary contained herein, any payment to be made, or authorization contained hereunder, shall be subject to the requirements imposed on the Debtors under the Interim Order (I) Authorizing Postpetition Financing, (II) Granting Liens and Providing Super Priority Administrative Expense Priority, (III) Authorizing Use of Cash Collateral, (IV) Granting Adequate Protection to Prepetition Secured Lenders,
(V) Modifying the Automatic Stay, and (VI) Scheduling a Final Hearing (as such order may be amended, modified, supplemented, or granted on a final basis pursuant to the terms thereof).
5. All banks and other financial institutions are authorized to (a) receive, process, honor and pay all checks presented for payment and to honor all electronic payment requests made by the Debtors related to the prepetition obligations described in the Motion, whether such checks were presented or electronic requests were submitted prior to or after the Petition Date and (b) rely on the Debtors’ designation of any particular check or electronic payment request as approved pursuant to this Order.
6. Notwithstanding the relief granted herein and any actions taken pursuant hereto, nothing herein is intended or should be construed as: (a) an admission as to the validity of any claim against the Debtors; (b) a waiver of the Debtors’ right to dispute any claim on any grounds; (c) a promise or requirement to pay any claim; (d) an admission that any particular claim is of a type specified or defined hereunder; (e) a request or authorization to assume any executory contract or unexpired lease; or (f) a waiver of the Debtors’ rights under the
Bankruptcy Code or any other applicable law, pursuant to section 365 of the Bankruptcy Code. 7. Bankruptcy Rule 6003(b) has been satisfied because the relief requested in the Motion is necessary to avoid immediate and irreparable harm to the Debtors.
8. Notwithstanding any applicability of Bankruptcy Rule 6004(h) or
otherwise, the terms and conditions of this Order shall be immediately effective and enforceable upon its entry.
9. Notwithstanding the relief granted herein and any actions taken pursuant hereto, nothing herein shall create, nor is intended to create, any rights in favor of, or enhance the status of, any claim held by any person or entity.
10. Notwithstanding anything contained herein or in the Motion, nothing in this Order should be read to authorize the Debtors to pay any amounts on account of past-due Taxes.
11. This Court shall retain jurisdiction to hear and determine all matters arising from or related to the implementation of this Order.
Dated: Wilmington, Delaware April___, 2014
____________________________________ UNITED STATES BANKRUPTCY JUDGE
