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Looking in the Mirror…Liking (Hopefully) What We See!

Date: May 01, 2019 @ 07:00 AM
Filed Under: Bankruptcy

Provoking thought…as an author, this is what we hope to accomplish, especially in times when you turn on the television or a live stream and most pundits are talking “at” you instead of providing reason for the viewer to think.

A month or so ago I wrote an article for ABL Advisor titled: Chapter 11 – The Process Can Still Work – describing the success of Mattress Firm’s journey through the Chapter 11 process, and why this particular case gives us hope that the Chapter 11 can still work.

Today more than ever, I believe we should all take a moment to look at ourselves in a mirror and contemplate what we see. Hopefully we see someone we are proud of, and feel successful. I often think of the old cliché, when we point one finger out at someone, hopefully a “thumbs up” points back at us. But, what is defined as being successful is very different for everyone.

Recently I have been pondering three Chapter 11 situations. Two may raise as many questions as answers for many professionals. The third, like Mattress Firm, continues to give me hope not only about the Chapter 11 process, but also those leading and adjudicating the process.

I have not been involved in any of the cases outlined; therefore, my comments are drawn from what I read from court documents and publications, like many of you.

Payless ShoeSource

In April of 2017, Payless ShoeSource filed for Chapter 11. During its stay in bankruptcy, the company shed billions of dollars of debt. Unfortunately, shedding the debt wasn’t enough to save the company, and ultimately a little less than two years later – on or about February 19, 2019; the company filed for Chapter 11 bankruptcy again, and has since filed a plan for closing its North American stores.

One school of thought is that our job and hope as turnaround professionals is: “To give the debtor a second chance and hope they have developed a strong plan, established sufficient runway and are capable of executing on the plan.” Ultimately giving them a second chance they are able to take full advantage of – focusing on providing an opportunity for new life and sustainability. Many times this process works; but sometimes for a variety of reasons it doesn’t. In Payless’ and its successor’s case, unfortunately it was the latter.

Two views to consider:

  • The Positive: They (Payless) were provided a second chance and certainly had sufficient financial support, so the stakeholders had an understanding of the pros and cons of the restructure plan. According to Court filings, the “Non-North American” subsidiaries will survive. So from a broader perspective, there may have been a small modicum of success.

Back in the day, one of my first supervisors said, “Rob when you bring me a problem, also bring me a solution to show me you thought about the answer.” It’s so easy just to point out the problems.

Recently, a famous celebrity sent out a “tweet” that significantly damaged her reputation and caused a very successful television show to be cancelled. That celebrity then proceeded to blame everyone else for the resulting cancellation of the show. However what immediately came to mind for me was that maybe the celebrity should have considered never sending the tweet in the first place. After all, it’s much easier to blame others than take responsibility for one’s own actions.

Toys “R” Us (Toys)

Whether we are a consumer who shopped there, or a professional who worked on the case, Toys “R” Us’ background needs little discussion. As both children and now parents, we remember how fun it was shopping at Toys when it was at its pinnacle of success. Little excited us more than walking through the store, scanning the endless supply of bright toys and choosing ours or our children’s favorite toys. But sadly, for the last decade or so, and again, none of it needs repeating as it has been detailed in so many publications, Toys became a shell of itself. Ultimately the company filed for bankruptcy, and has liquidated. In fact for the most part, the only things left of the once mighty icon are the remaining signs on the buildings.

In what I’ll describe as a truly insightful article, “How Companies Like Toys R Us Get Approval to Pay Executive Bonuses During Bankruptcy” published April 10, 2018, author Marielle Segarra outlines how companies petition Bankruptcy Courts for approval to pay bonuses. In the Toys case, bonuses were paid if the company achieved established and agreed upon milestones. In this case, a structure was put forth of what the Judge seemed to approve as a fair structure. And as Ms. Segarra outlined, since Toys didn’t meet the parameters, the executives appear to have not received any post confirmation bonuses.

However, the thing that goes to the core of the title of this article, and again quoting Ms. Segarra, “As for Toys R Us, the company’s executives didn’t go home empty handed. Less than a week before the retailer filed for bankruptcy it paid its executives $8 million to stay on board.” This leaves me thinking: What exactly did they do to earn this $8 million other than assist in the final stages of running the company into the ground? Is it possible that anyone could have done any worse and probably for far less than $8 million?

Continuing to Give Us Hope

This past March 2019, I had the privilege of attending an event where bankruptcy court Judges Judge Kevin Carey, Judge Eric Frank and Judge Kevin Gross were on a panel. While listening to each of them individually and then as a group of panelists along with lawyers, Sean Beach, Mark Indelicato and Mark Minuti, I realized that humility is not as prevalent as it once was, and the representatives on this panel give the process hope. Each of them was amazingly well-informed, well-prepared and extremely modest. Excellence doesn’t always have to be in the spotlight.

All panelists were prepared, engaging and thoughtful. Mixing in just a little levity with enough sternness to keep both the panelists and the audience engaged. It reminded me of a quote I heard a retired Judge once say, “I should have stayed a Judge, because it was the only time in life people had to do what I told them…or at least listen.”

At the core, successful organizations are such because they usually offer a product or service that over time is determined that stakeholders can’t do without, and they have exceptional people.

Charles Barkley, the former Philadelphia 76ers basketball player and current NBA Hall of Famer was raised by his grandmother. I recall Barkley in a newspaper article saying his grandmother told him that when you are going up the elevator of success, make sure you get off the elevator at each floor and say thank you to those who helped you along the way. When we look in the mirror we should keep some of the aforementioned in mind.

Today it’s more important than ever to consider that it’s not always the end result that matters, but rather our approach and our path to how we achieve the desired result. This simple truth continues to remain important, even if it’s less visible in today’s society.

Robert D. Katz, CTP, CPA, MBA
Managing Director | EisnerAmper LLP
Robert D. Katz, CTP, CPA, MBA is a Managing Director at EisnerAmper Advisory Group. He serves as a CRO and is an expert in and increasing cash flow. He is a frequent contributor to the ABL Advisor. He is one of the Founders of TMA’s most successful conferences, The Distressed Investing Conference, and the MidAtlantic Regional Symposium. He is an Adjunct Professor in Strategic Management and Corporate Finance at Temple University. He can be reached at or (215) 738 – 5542.
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