Government orders directing the shut-down of non-essential retailers, as a result of COVID-19, have forced another retail chain into bankruptcy. Creative Hairdressers, Inc. (“Creative”), the parent of Hair Cuttery, filed for Chapter 11 relief yesterday in the bankruptcy court for the District of Maryland. According to its first day filings, Creative is one of the largest independent, family owned chain of hair salons that provides comprehensive services for men and women.
At the time of the bankruptcy, Creative owned approximately 800 locations. It also had employed over 10,000 employees prior to its suspension of operations due to COVID-19. Creative was founded in 1974 by Dennis and Ann Ratner and operates in 15 states and the District of Columbia. It had approximately $440,000,000 in revenues for the fiscal year ending in September 2019.
While COVID-19 may have been the final push into Chapter 11, Creative acknowledges in its bankruptcy filings that it was subject to aggressive expansion campaigns of large competitors, which caused Creative to implement strategic initiatives over the last few years, including the closure of underperforming stores. Indeed, Creative retained advisors in the fall of 2019 to help formulate a restructuring plan, including securing accommodations from landlords.
According to papers filed with the bankruptcy court, prior to the Chapter 11 filing Creative entered into an Asset Purchase Agreement with HC Salon Holdings, a successor in interest to a bank group comprised of M&T Bank, Eagle Bank, and Burke and Herbert Bank. Through this Agreement, Creative believes its business will survive and thousands of salon jobs will be preserved.
Even with the proposed agreement with HC Salon Holdings, there will be wreckage in the wake of this bankruptcy case. Similar to other ongoing retail bankruptcy proceedings, Creative is already seeking to reject 49 leases and is seeking to temporarily cease making rent payments to landlords that have not consented to proposed rent deferrals. Whether the Court will allow and for how long such rent deferrals will be permitted, has not yet been decided.
Stark & Stark has been counsel to landlords and trade creditors in the Modell’s’ Sports Authority, Pier 1, Art Van’s Furniture, Fairway Market, Mattress Firm, Toys “R” Us, Payless, Eastern Outfitters (EMS Part 2), EMS, Golfsmith, RadioShack, General Wireless (RadioShack 2), Gander Mountain, A&P, Joyce Leslie, rue21, and Central Grocers Chapter 11 bankruptcy cases.
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