Former Paper Store dismissal motion draws objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., Oct. 15 – TPS Oldco, LLC’s, formerly Paper Store, LLC, motion seeking dismissal of its Chapter 11 case drew an objection from Regions 1 and 2 U.S. trustee William K. Harrington, according to a Friday filing with the U.S. Bankruptcy Court for the District of Massachusetts.

The debtors seek an order approving what has come to be known as a “structured dismissal,” which amounts to “cafeteria style” relief under which the debtors implement their own plan of liquidation, Harrington said.

“The broad relief sought by the debtors is not contemplated by the bankruptcy code and ignores important safeguards congress built into the Chapter 11 plan confirmation process,” the U.S. trustee said in his objection.

“Alternatively, the proposed dismissal avoids final administration and supervision by an independent fiduciary were the cases converted to Chapter 7.”

The debtors argue that conversion or appointment of a trustee would provide no benefit to the estate. But this argument ignores the checks and balances incorporated in Chapter 7 that are lacking in structured dismissals, Harrington said.

“Structured dismissals may include a post-dismissal distribution, but they lack oversight by a disinterested Chapter 7 trustee and the Chapter 7 safeguards against error or abuse,” the U.S. trustee added.

Harrington also noted that while the debtors state that a Chapter 11 plan is not feasible in these cases, the proposed structured dismissal contains provisions typically seen in a plan, including payment of professionals and transfer of certain remaining assets to the buyer, but without the disclosure and the right to vote protections afforded by the codified plan confirmation process.

The Paper Store is an Acton, Mass.-based specialty gift retailer. The company filed bankruptcy on July 14, 2020 under Chapter 11 case number 20-40743.

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