Payless Gets Approval From Bankruptcy Court to Start Closing U.S. Stores

(Bloomberg) -- Payless Inc. won court approval to begin liquidating its North American operations, a move that, when complete, would put most of the retailer’s 16,000 employees out of work.

The discount shoe seller returned to bankruptcy Tuesday, less than two years after emerging from court protection and slashing debt in an effort to survive. This time, Payless expects to abandon its 2,500 North American stores, leaving only Latin America and other international operations intact.

U.S. Bankruptcy Judge Kathy A. Surratt-States also gave the company permission to buy more inventory for its going-out-of business sales and approved a number of routine requests designed to allow Payless to keep operating during the liquidation. Payless plans to have all of its Canadian operations closed by April 30 and all U.S. stores out of business by May 21.

The company will spend as much as $8.6 million in bonus pay to retain workers through the store closings, company liquidation adviser Joseph A. Malfitano said in court papers.

‘Total Failure’

During the hearing, Stephen Zide, who represents a group of short-term lenders, told the judge that Payless’s performance since its first bankruptcy 18 months ago had been a “total failure.”

“We have no idea how this happened,” Zide said, and called for an investigation into the matter. He criticized the role played by Alden Global Capital, now the majority stockholder in Payless. Zide said that key Payless management left after the company’s first bankruptcy and were either not replaced or were replaced with incompetent Alden personnel.

Allan Brilliant, a lawyer representing Alden, denied Zide’s allegations. “Alden is part of the solution, is the most disappointed, and did nothing wrong,” Brilliant said. Alden operated at arm’s length from Payless in an agreement that “benefited the company more than Alden,” he said.

The Topeka, Kansas-based Payless was founded in 1956. The company struggled to manage debt taken on in a 2012 leveraged buyout by Golden Gate Capital and Blum Capital Partners, before filing its first bankruptcy case in April 2017.

The case is Payless Holdings LLC, 19-40883 U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis)

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