Gary Eisenberg

Retail bankruptcies continue apace in 2017. Their effects on commercial real estate are potentially widespread. What has been less well understood is how changes to the Bankruptcy Code from over a decade ago and trends in bankruptcy practice have combined to limit considerably the likelihood that any retailer filing for Chapter 11 bankruptcy relief can emerge successfully as a reorganized company.

Dozens if not hundreds of retail companies have filed for bankruptcy in 2017 alone. The common culprit typically identified in each of them is the mega-trend from in-person to online retailing. One could say the trend is of Amazonian proportions.

As the migratory trend in retail from in-person to online continues, unlike the case with past waves of retail bankruptcies, predictions do not abound for a “recovery” in traditional retailing. However, that seismic industry change is only part of the explanation why companies such as The Limited, Gordmans stores and hhgregg have not only filed for bankruptcy but have ceased operations with their cases proceeding rapidly. The legal regime and common practices of Chapter 11 are substantially different from those facing the large retailers such as Kmart and Caldor, whose filings shaped the course of retail Chapter 11 practice in the 1990s. Those legal realities compound the difficulties facing any retailer in a Chapter 11 case today.