Case 20-33332 Doc 14 Filed 08/02/20 Entered 08/02/20 20:48:51 Desc Main Document Page 1 of 53 Steven N. Serajeddini, P.C. (pro hac vice admission pending) Michael A. Condyles (VA 27807) KIRKLAND & ELLIS LLP Peter J. Barrett (VA 46179) KIRKLAND & ELLIS INTERNATIONAL LLP Jeremy S. Williams (VA 77469) 601 Lexington Avenue Brian H. Richardson (VA 92477) New York, New York 10022 KUTAK ROCK LLP Telephone: (212) 446-4800 901 East Byrd Street, Suite 1000 Facsimile: (212) 446-4900 Richmond, Virginia 23219-4071 Telephone: (804) 644-1700 -and- Facsimile: (804) 783-6192 David L. Eaton (pro hac vice admission pending) Jaimie Fedell (pro hac vice admission pending) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North La Salle Street Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Proposed Co-Counsel to the Debtors and Debtors in Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION ) In re: ) Chapter 11 ) LE TOTE, INC., et al.,1 ) Case No. 20-33332 ) Debtors. ) (Joint Administration Requested) ) DEBTORS’ MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE PAYMENT OF CERTAIN PREPETITION AND POSTPETITION TAXES AND FEES AND (II) GRANTING RELATED RELIEF The above-captioned debtors and debtors in possession (collectively, the “Debtors”)2 respectfully state as follows in support of this motion (this “Motion”): 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are set forth in the Debtors’ Motion for Entry of an Order (I) Directing Joint Administration of Chapter 11 Cases and (II) Granting Related Relief filed contemporaneously herewith. The location of the Debtors’ service address is 250 Vesey Street, 22nd Floor, New York, New York 10281. 2 A detailed description of the Debtors and their business, and the facts and circumstances supporting the Debtors’ chapter 11 cases, are set forth in greater detail in the Declaration of Ed Kremer, Chief Restructuring Officer of Le Tote, Inc., in Support of Chapter 11 Petitions and First Day Motions (the “First Day Declaration”), filed contemporaneously with the Debtors’ voluntary petitions for relief filed under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), on the date hereof (the “Petition Date”). Capitalized terms used, but not otherwise defined in this Motion shall have the meanings ascribed to them in the First Day Declaration. KE 67616451 Case 20-33332 Doc 14 Filed 08/02/20 Entered 08/02/20 20:48:51 Desc Main Document Page 2 of 53 Relief Requested 1. The Debtors seek entry of interim and final orders, substantially in the forms attached hereto as Exhibit A and Exhibit B (respectively, the “Interim Order” and “Final Order”): (a) authorizing, but not directing, the Debtors, to remit and pay Taxes and Fees (as defined herein) without regard to whether such obligations accrued or arose before or after the Petition Date, including those obligations subsequently determined upon audit or otherwise to be owed for periods prior to the Petition Date and (b) granting related relief. In addition, the Debtors request that the Court schedule a final hearing within 21 days of the commencement of these chapter 11 cases to consider approval of this Motion on a final basis. Jurisdiction and Venue 2. The United States Bankruptcy Court for the Eastern District of Virginia (the “Court”) has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Standing Order of Reference from the United States District Court for the Eastern District of Virginia, dated August 15, 1984. The Debtors confirm their consent, pursuant to rule 7008 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 4. The bases for the relief requested herein are sections 105(a), 363(b), 507(a)(8), and 541 of the Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and rules 6004-2 and 9013-1 of the Local Rules of the United States Bankruptcy Court for the Eastern District of Virginia (the “Local Bankruptcy Rules”). 2 Case 20-33332 Doc 14 Filed 08/02/20 Entered 08/02/20 20:48:51 Desc Main Document Page 3 of 53 Background 5. The Debtors are the combination of Le Tote—a venture-backed fashion rental subscription service founded in 2012 in San Francisco—and Lord & Taylor—the iconic luxury retailer which traces its origins to 1826 in New York. Le Tote purchased Lord & Taylor in a transaction which closed in November 2019. The Debtors operate both an online, subscription- based clothing rental service and a full-service fashion retailer with 38 brick-and-mortar locations and a robust e-commerce platform. In response to the COVID-19 pandemic the Debtors temporarily closed all retail locations in March 2020, although they continued to operate the Le Tote and Lord & Taylor websites. As COVID-19 restrictions relaxed, the Debtors have reopened their brick-and-mortar locations. The Debtors reported revenue of approximately $253.5 million for 2019. As of the Petition Date, the Debtors have approximately 651 employees and funded debt obligations of approximately $137.9 million. 6. On the Petition Date, each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their business and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Concurrently with the filing of this Motion, the Debtors filed a motion requesting procedural consolidation and joint administration of these chapter 11 cases pursuant to Bankruptcy Rule 1015(b). No request for the appointment of a trustee or examiner has been made in these chapter 11 cases, and no committees have been appointed or designated. Tax and Fee Obligations 7. In the ordinary course of business, the Debtors collect, withhold, and incur sales, use, withholding, income, franchise, property, and import related taxes and charges, as well as 3 Case 20-33332 Doc 14 Filed 08/02/20 Entered 08/02/20 20:48:51 Desc Main Document Page 4 of 53 other business and regulatory fees (collectively, the “Taxes and Fees”).3 The Debtors remit the Taxes and Fees to various federal, state, and local governments, including taxing and licensing authorities identified in a schedule attached hereto as Exhibit C4 (collectively, the “Authorities”). Taxes and Fees are remitted and paid by the Debtors through checks and electronic funds transfers that are processed through their banks and other financial institutions. The Debtors estimate that approximately $7,971,606.03 million in Taxes and Fees are outstanding as of the Petition Date, in addition to other amounts that will become due and owing to the Authorities after the Petition Date in the ordinary course. This amount includes $5.2 million of potential tax liability due to ongoing audits that the Debtors are currently disputing. 8. The Debtors pay the Taxes and Fees to the Authorities on a periodic basis, remitting them monthly, quarterly, semi-annually, or annually depending on their nature and incurrence. The Debtors seek authority to make such payments with respect to Taxes and Fees where: (a) Taxes and Fees accrued or were incurred prepetition but were not paid prepetition or were paid in an amount less than actually owed; (b) Taxes and Fees were paid prepetition by the Debtors and were lost or otherwise not received in full by any of the Authorities; or (c) Taxes and Fees incurred for prepetition periods may become due after the commencement of these chapter 11 cases. 3 By this Motion, the Debtors do not seek the authority to collect and remit state, provincial, and federal employee- related taxes and withholdings. Such relief is instead requested in the Debtors’ Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to (A) Pay Prepetition Wages, Salaries, Other Compensation, and Reimbursable Expenses and (B) Continue Employee Benefits Programs, and (II) Granting Related Relief filed contemporaneously herewith. 4 Although Exhibit C is intended to be comprehensive, the Debtors may have inadvertently omitted taxing authorities from Exhibit C. Inadvertently omitted taxing authorities are also Authorities, as defined herein. By this Motion, the Debtors request relief with respect to Taxes and Fees payable to all taxing Authorities. In the event the Debtors pay any Authority not included on Exhibit C, the Debtors will notify (i) the United States Trustee for the Eastern District of Virginia and (ii) any official committee of unsecured creditors appointed in these chapter 11 cases, and file a notice with the Court listing such Authority five days prior to such payment. 4 Case 20-33332 Doc 14 Filed 08/02/20 Entered 08/02/20 20:48:51 Desc Main Document Page 5 of 53 In addition, for the avoidance of doubt, the Debtors seek authority to pay Taxes and Fees accrued or incurred postpetition and Taxes and Fees for so-called “straddle” periods.5 9. The Debtors believe that any failure to pay the Taxes and Fees could materially disrupt the Debtors’ business operations in several ways, including that: (a) the Authorities may initiate audits of the Debtors, which would unnecessarily divert the Debtors’ attention from the restructuring process; (b) the Authorities may attempt to suspend the Debtors’ operations, file liens, seek to lift the automatic stay, and pursue other remedies that would harm the estates; and (c) certain of the Debtors’ directors and officers could be subject to claims of personal liability, which would likely distract them from their duties related to the Debtors’ restructuring.