SILLS CUMMIS & GROSS P.C. S. Jason Teele, Esq. · 2020-05-22 · 7241975 v3 7241975 v3 7241975 v3 SILLS CUMMIS & GROSS P.C. S. Jason Teele, Esq. Gregory A. Kopacz, Esq. 101 Park Avenue,

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SILLS CUMMIS & GROSS P.C. S. Jason Teele, Esq. Gregory A. Kopacz, Esq. 101 Park Avenue, 28th Floor New York, New York 10178 (212) 643-7000 (Telephone) Proposed counsel to the Debtors and Debtors-in-Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

In re: THE NORTHWEST COMPANY, LLC, et al.1 Debtors.

Chapter 11 Case No. 20-10990 (MEW)

(Jointly Administered)

MOTION OF THE DEBTORS FOR AN ORDER APPROVING AGREEMENT WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS GOVERNING (I)

RULE 2004 INVESTIGATION AND (II) JOINT MARKETING AND SALE PROCESS

The Northwest Company LLC and The Northwest.com LLC (collectively, the “Debtors”),

by their undersigned attorneys, move (the “Motion”) for entry of an order substantially in the form

attached hereto as Exhibit A (the “Proposed Order”), pursuant to sections 105(a), 363(b) and

365(a) of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the “Bankruptcy Code”),

and Rules 2002, 2004, 6004 and 6006 of the Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”) approving an agreement between the Debtors and the Official Committee

of Unsecured Creditors (the “Committee”)2 governing (i) Bankruptcy Rule 2004 Investigation and

(ii) Joint Marketing and Sale Process, and respectfully submit:

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: The Northwest Company, LLC (8132) and The Northwest.com LLC (1339). The location of the Debtors’ service address is: 49 Bryant Avenue, Roslyn, New York 11576. 2 The members of the Committee are: Exeter 4755 Southpoint, LLC; Standard Fiber, LLC; NFL Properties LLC; Major League Baseball Properties, Inc.; and Collegiate Licensing Company.

20-10990-mew Doc 96 Filed 05/22/20 Entered 05/22/20 09:18:28 Main Document Pg 1 of 27

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JURISDICTION AND VENUE

1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334

and the Amended Standing Order of Reference from the United States District Court for the

Southern District of New York, dated as of January 31, 2012. This is a core proceeding pursuant

to 28 U.S.C. § 157(b)(2).

2. Venue of the Bankruptcy Cases and this Motion is proper in this District pursuant

to 28 U.S.C. §§ 1408 and 1409.

3. The statutory predicates for the relief requested herein are sections 105(a), 363(b),

and 365(a) of title 11 of the Bankruptcy Code and Rules 2002, 2004, 6004 and 6006 of the

Bankruptcy Rules.

4. The Debtors consent to the entry of a final judgment or order with respect to this

Motion if it is determined that this Court would lack Article III jurisdiction to enter such final order

or judgment absent the consent of the parties.

RELIEF REQUESTED

5. By this Motion, the Debtors request that the Court enter an order, in substantially

in the form of the Proposed Order, authorizing the Debtors to enter into an agreement with the

Committee authorizing (i) the Committee to conduct an investigation pursuant to Bankruptcy Rule

2004 and pursue any causes of action it determines exist therefrom and (ii) joint authority for the

Committee to co-run the forthcoming marketing and sale process, as described in the Term Sheet

attached hereto as Exhibit C.

BACKGROUND

A. The Chapter 11 Cases

6. On April 18, 2020 (the “Petition Date”), each of the Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court

for the Southern District of New York (the “Court”) commencing the above-captioned chapter 11

cases (the “Chapter 11 Cases”). The Debtors continue to operate their business and manage their

properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.


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7. No examiner or trustee has been appointed the Chapter 11 Cases. However, on May

12, 2020, Ashford Textile LLC and Extreme Horse Limited filed a Joint Motion for the

Appointment of an Examiner or, in the Alternative, a Chapter 11 Trustee (the “Ashford/Extreme

Motion”). See Docket No. 63.

8. On April 30, 2020, the Office of the United States Trustee for Region 2 appointed

the Committee. See Docket. No. 41. The Committee has retained Lowenstein Sandler LLP as its

attorneys and Emerald Capital as its financial advisor. See Docket Nos. 61, 81.

9. A description of the Debtors’ business and reasons for commencing the Chapter 11

Cases is set forth in the Declaration In Support Of Chapter 11 Petitions And First Day Pleadings.

See Docket No. 8.

B. The Ashford/Extreme Motion

10. The Ashford/Extreme Motion requests the appointment of an examiner to

investigate the allegations contained in the CBIZ report. In the alternative, the Ashford/Extreme

Motion requests the appointment of a chapter 11 trustee.

11. The Debtors dispute the movant’s factual grounds for the relief sought and object

to the necessity to appoint an examiner or a chapter 11 trustee. The Debtors will file an appropriate

objection to the Ashford/Extreme Motion on or before the deadline established by the Court.

12. The Debtors also submit that the agreement with the Committee described herein

appropriately addresses the issues raised in the Ashford/Extreme Motion, and that the

Ashford/Extreme Motion is made moot as a result. By separate application, the Debtors are

requesting that the Court adjourn the hearing on the Ashford/Extreme Motion, currently scheduled

for June 4, 2020, and all associated discovery3, until the Court rules on this Motion.

3 Ashford/Extreme have served extensive document requests on The Northwest Company LLC and non-debtors Northwest Textiles LLC and Ross Auerbach. The Debtors will need to devote substantial time and resources to responding to those requests. Ashford/Extreme also noticed depositions of Ross Auerbach and Robert Jolson, the Debtors’ chief financial officer. This discovery is duplicative of the discovery the Debtors agreed to provide to the Committee under the terms of the parties’ agreement, and is therefore unnecessary.


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B. The Agreement between the Debtors and Committee

13. Despite its disagreement with the factual and legal bases underpinning the

Ashford/Extreme Motion, the Debtors appreciated the import of the movant’s allegations. The

Debtors wish to confront those allegations head on to dispel any notion regarding mismanagement

or misconduct. Likewise, the Committee understood the seriousness accompanying such

allegations, and it took swift action to address them.

14. The Committee expressed its views about the troubling nature of the

Ashford/Extreme Motion in correspondence to the Debtors and Ashford/Extreme dated May 15,

2020. See Exhibit B. The Committee concluded that “a thorough investigation into potential

causes of action against Ross Auerbach and other insiders is critical” but believes that “the

appointment of an examiner is not necessary (nor mandatory) in this case.” Id. at 1. The Committee

suggested that the issues the Ashford/Extreme Motion seeks to have investigated by an examiner

are “matters that creditors’ committees customarily investigate”. Id. Because the Committee is an

independent fiduciary of the Debtors’ estates, the Committee proposed that it should conduct the

investigation. Its motivation to conduct the investigation and the significant cost-savings realized

by avoiding the appointment of an examiner, were among the benefits cited for by the Committee

for empowering it to conduct an investigation. Id. at 2. To address the issue raised by

Ashford/Extreme concerning the fairness and propriety of the sale process, the Committee also

suggested that its financial adviser should co-run that process with a chief restructuring officer and

independent manager to be appointed. Id. Essentially, the Committee proposed an effective

alternative to the relief requested in the Ashford/Extreme Motion that fully addresses the concerns

raised in it, while avoiding the cost to the estates of an examiner.

15. The Debtors believed that much of the Committee’s proposal had merit.

Committees routinely investigate a host of issues, including potential claims and causes of action

against insiders, management, and other parties. In light of allegations made at the first day hearing

in these Chapter 11 Cases and in the Ashford/Extreme Motion, the Debtors fully expected that the

Committee would conduct an investigation of Ross Auerbach and others as part of a broader


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investigation of the Debtors’ assets and potential causes of action. In addition, committees often

have significant involvement in a debtor’s marketing and sale efforts. Debtors routinely agree to

consult with committees about the sale process and before making important decisions, such as

determining whether a party is a “qualified” bidder and deciding which bid to select as the “highest

and best” offer after an auction. Accordingly, the Debtors were prepared to cooperate with the

Committee while it conducted its investigation and intended to permit the Committee to have a

significant role in the sale process. It is also worth noting that the appointment of an examiner with

expanded powers constitutes an event of default under the Debtors’ post-petition factoring

arrangement with its secured lender.

16. While the Committee’s proposal had merit, it included certain provisions that the

Debtors believed were inappropriate given the circumstances of these Chapter 11 Cases.

Specifically, the Debtors believed it would be inappropriate – and unduly prejudicial to their

business – to appoint an independent member, selected by the Committee and Ashford/Extreme,

solely on the basis of the unproved allegations contained in a hearsay document and repeated in

the Ashford/Extreme Motion. The Debtors have not had an opportunity to fully respond to those

allegations. Significantly, the allegations are made by two related parties that are plainly motivated

by their own legal interests rather than the interests of the Debtors or their creditors. Perhaps more

important, the allegations are unproved. They are principally based on the CBIZ Report that was

prepared at the direction of Ashford. Upon the insistence of Ashford, the Debtors retained CBIZ

to prepare the report, but a copy of it was never provided to them. The CBIZ report was delivered

to the Debtors for the first time by counsel for Extreme Horse (not Ashford or CBIZ) just moments

before the first day hearing in these Chapter 11 Cases was scheduled to begin. Finally, as is

partially the concern with the appointment of an examiner, the Debtors believe that an independent

member would create an unnecessary administrative expense.

17. Likewise, the Debtors believed that the expense of a chief restructuring officer was

unnecessary because there were adequate measures in place designed to avoid even the appearance

of impropriety by management. Those measures include the retention of Clear Thinking Group to


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serve as the Debtors’ financial advisors. Clear Thinking Group is a respected firm whose

professionals have proven experience advising debtors in complex chapter 11 cases. In addition to

providing financial advisory services to the Debtors on matters of bankruptcy process and strategy,

Clear Thinking Group’s mandate is to ensure that the Debtors comply with their financial reporting

obligations to the Court, the United States Trustee, the Debtors’ post-petition lender, the

Committee and other parties. Among other things, Clear Thinking Group prepared the 13-week

forecast under the post-petition financing (and the revised forecasts), reviews the Debtors’ monthly

operating reports and is closely involved with the preparation of the Debtors’ Schedules of Assets

and Liabilities and Statements of Financial Affairs. In addition, Clear Thinking Group reviews and

approves the Debtors’ weekly funding requests that are submitted to the post-petition lender to

support loan advances. Each weekly funding request itemizes all disbursements the Debtors plan

to make in the forthcoming week (regardless of the amount of a disbursement). A disbursement is

made only if it is included in an approved weekly funding request.

18. Moreover, the nature of the chapter 11 process places the Debtors under the intense

scrutiny of a number of parties, including the Court, the United States Trustee, Committee, the

Debtors post-petition lender, and others. Virtually every facet of the Debtors’ operations is subject

to formal and informal reporting.

19. For these and other reasons, the Debtors disagreed with the Committee’s proposal

to appoint a chief restructuring offer.

20. The Debtors and Committee met and conferred about the Committee’s proposal.

As a result of those discussions, the parties agreed to a protocol that meaningfully addresses the

issues raised in the Ashford/Extreme Motion in a way that the Committee felt was appropriate.

The terms of the Debtors’ agreement with the Committee are set forth in a term sheet dated May

21, 2020 and attached hereto as Exhibit C. The salient terms of the parties’ agreement are as

follows:4

4 This summary is qualified in its entirety by the Term Sheet. To the extent of any conflicts between this summary and the Term Sheet, the Term Sheet shall control.


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Provisions for a Thorough, Unfettered Investigation and the Pursuit of Claims:

The Committee is authorized to investigate all matters that it, in its sole discretion, deems relevant, including, but not limited to, allegations of misconduct by Ross H. Auerbach, contained in the Ashford/Extreme Motion.

The Committee’s investigation will be thorough but timely, and will conclude no later than thirty (30) days after the Court enters an order approving a sale of the Debtors’ assets.

The Debtors, and all of its directors, officers and employees, including Ross H. Auerbach, agree to fully cooperate with the Committee’s investigation and will promptly respond to requests for information and/or documents without compulsory process.

Subject to the attorney-client privilege and attorney work product doctrine, the Debtors will comply with requests for information served by the Committee.

The Committee may interview employees of the Debtors on reasonable notice to the Debtors. The Debtors will produce such employees for interview on the date contained in the Committee’s notice or such other date as the Debtors and Committee agree. The Committee may also notice an examination of any employee of the Debtors pursuant to Fed. R. Bank. P. 2004, including individuals previously interviewed.

The Committee may issue subpoenas pursuant to Fed. R. Bank. P. 2004 on non-parties without further order or notice.

The Committee will have exclusive standing to bring any cause of action, and to settle any cause of action, it determines should be commenced based on the findings of the investigation.

Provisions for Oversight and Co-Management of the Sale Process:

The Committee will co-run the sale process with the Debtors’ investment banker.5

The Committee’s professionals will have full access to the data room created for the sale process.

The Committee’s financial advisor will be authorized to contact parties they believe may be interested in the Debtors’ assets. To avoid duplication and market confusion, the Committee’s financial advisor shall provide the Debtors’ investment banker with a list of the parties they intend to contact and shall coordinate any outreach efforts with the Debtors’ investment banker.

The Committee’s professionals (counsel and financial advisor) will be permitted to participate in sale-related conference calls with potential bidders; provided that

5 The Debtors intend to request Court approval to retain MMG Capital Advisors as their investment banker.


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participation would not result in a conflict of interest on the part of any member of the Committee or any of the Committee’s professionals with respect to a specific potential bidder. Appropriate screening procedures will be implemented to avoid improper disclosure of information.

The Debtors’ advisors (including their investment banker) will regularly consult with the Committee’s advisors. Moreover, the Committee’s financial advisor will be authorized to freely interact with the Debtors’ investment banker.

The Debtors’ professionals (including their investment banker) promptly provide copies of all bids and other information received from bidders to the Committee’s professionals.

The Debtors may designate a bidder as a stalking horse bidder only upon consultation with the Committee and post-petition lender and the consent of the Committee.

The Debtors may designate a bidder or a bid as “qualified” pursuant to bid procedures approved by the Court only upon consultation with the Committee and post-petition lender and the consent of the Committee.

If more than one qualified bid is received by the applicable bid deadline, the Debtors and Committee will co-run the auction at the time and place specified in the Court’s order approving bid procedures. The Debtors will consult with the Committee and post-petition lender concerning conduct of the auction, and may, only upon the Committee’s consent, value any bid for bidding purposes and, subject to the order approving bid procedures, waive or change any procedure regarding the conduct of the auction (i.e., bid increments).

At the conclusion of the auction, the Debtors, upon consultation with the committee and post-petition lender and with the consent of the Committee, may select the “highest and best” bid as the winning bid and the next “highest and best” bid as the back-up bid. The parties agree that they will use best efforts to resolve any disagreement as to which bid is “highest and best”. In the event the Debtors and Committee do not agree on the selection of the “highest and best bid”, each party will recommend the bid that they believe is “highest and best” to the Court at the hearing to approve the sale.

Provisions for Additional Oversight of the Debtors’ Management and Operations:

The Debtors and/or Clear Thinking Group will concurrently share with the Committee’s financial advisor any materials, updates, or reports provided to the post-petition lender.

The Debtors will revise the proposed order granting its application to retain Clear Thinking Group as financial advisor [Docket No. 73] to include the following provision:

Consistent with current practice, the Debtors, through their controller or chief financial officer, shall provide a weekly funding request to Clear Thinking Group for review, consultation and approval. Other than disbursements required by an order of the


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Court, the Debtor may disburse funds only for the purposes set forth in a weekly funding request reviewed and approved by Clear Thinking Group.

21. For the reasons discussed herein, the Debtors and Committee submit that their

agreement fully addresses the issues raised in the Ashford/Extreme Motion comprehensively,

meaningfully and efficiently.

BASES FOR RELIEF

22. It is axiomatic that a creditors’ committee may investigate the acts, conduct and

any other issue relevant to the case. See 11 U.S.C. § 1103(c)(2). Committees may also “raise and

may appear and be heard on any issue” in a case. See 11 U.S.C. § 1109(b).

23. Moreover, under section 363(b)(1) of the bankruptcy Code, a debtor may use

property of the estate “other than in the ordinary course of business” only with the approval of the

Court after notice and a hearing. The purpose of requiring notice and a hearing is to “assure

interested persons of an opportunity to be heard concerning transactions different from that might

be expected to take place so long as the debtor in possession is allowed to continue normal business

operations… .” See In re James A. Phillips, Inc., 29 B.R.391, 395 (S.D.N.Y. 1983). “Courts apply

the deferential business judgment test when analyzing transactions under § 363(b)(1).” Comm. of

Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983).

The business judgment test asks whether the debtor has proved that the transaction at issue is

“within the fair and reasonable business judgment of the Debtors and thus within the zone of

acceptability.” In re Dana Corp. (Dana II), 358 B.R. 567, 571 (Bankr. S.D.N.Y. 2006).

24. Here, the Debtors have articulated a clear business justification for entering into the

proposed agreement with the Committee. In agreeing to allow the Committee – which is an

independent fiduciary of the estates with statutory rights to investigate and be heard – the Debtors

and Committee have created a protocol that allows for a through and comprehensive investigation

of the issues raised by the Ashford/Extreme Motion. Importantly, the investigation is meaningful

because the parties agreement provides the Committee with the right to investigate unfettered by

the Debtors and the power to bring any claims identified as a result of the investigation. Moreover,


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the parties’ agreement substantially involves the Committee in the sale process and grants it the

right to consent (or to withhold consent) before crucial decisions are made. This oversight will

ensure that the sale process is open and fair, and that any offer ultimately accepted by the Debtors

represents the highest and best offer available. Finally, the agreement provides the Committee with

significant access to the Debtors’ advisors, reporting issued by the Debtors to its post-petition

lender, and memorializes the practice of requiring the consent of Clear Thinking Group with

respect to all disbursements. At the same time, the agreement ensures that the Debtors will remain

viable throughout the Chapter 11 Cases by avoiding the extraordinary costs associated with the

appointment of an examiner and the appointment of an independent manager and chief

restructuring officer. Finally, the relationship that maximizing the value of the Debtors’ assets has

to continuity of management during a delicate time in the Debtors’ history, is not insignificant.

25. While the Debtors’ agreement with the Committee is not an executory contract that

is subject to assumption under section 365 of the Bankruptcy Code, the reasoning behind the

standard a debtor must meet before assuming a contract is instructive in this context. As is the case

under section 363(b)(1), courts reviewing a debtor’s decision to assume or reject an executory

contract or unexpired lease apply a business judgment standard. See In re Federated Dept. Stores,

Inc., 131 B.R. 808, 811 (S.D. Ohio 1991) (“Courts traditionally have applied the business judgment

standard in determining whether to authorize the rejection of executory contracts and unexpired

leases”). Debtors receive considerable discretion in determining whether to assume or reject an

executory contract. Stanziale v. Machtomi (In re Tower Air, Inc.), 416 F.3d 229, 238 (3d Cir.

2005).

26. Once “the debtor articulates a reasonable basis for its business decisions (as distinct

from a decision made arbitrarily or capriciously), courts will generally not entertain objections to

the debtor's conduct.” Comm. of Asbestos-Related Litigants and/or Creditors v. Johns-Manville

Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). Accordingly, so

long as a debtor exercises “reasonable” business judgment, a court should approve the proposed

assumption or rejection. See, e.g., NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984).


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27. For the same reasons discussed above, the Debtors’ submit that they have

articulated a reasonable basis for entering into the agreement with the Committee. Therefore, the

Court should not seriously entertain objections to that decision.

28. Bankruptcy Rule 2004(a) provides that “[o]n motion of any party in interest, the

court may order the examination of any entity.” Fed. R. Bankr. P. The scope of such examination

may relate to “the acts, conduct, or property or to the liabilities and financial condition of the

debtor, or to any matter which may affect the administration of the debtor’s estate.” Fed. R. Bankr.

P. 2004(b). The purpose of a Bankruptcy Rule 2004 examination is to assist a party in interest in

determining the nature and extent of the bankruptcy estate, revealing assets, and examining

transactions. See In re Washington Mut., Inc., 408 B.R. 45, 50 (Bankr. D. Del. 2009); see also In

re Recoton Corp., 307 B.R. 751, 755 (Bankr. S.D.N.Y. 2004)

29. Finally, pursuant to section 105(a) of the bankruptcy Code, the Court has the power

to enter any order “that is necessary or appropriate to carry out the provisions of [the Bankruptcy

Code].” 11 U.S.C. § 105(a). The Debtors submit that approving the agreement with the Committee

is a proper exercise of the Court’s equitable power under section 105 because, among other

reasons, the agreement addresses important issues by granting authority to the Committee that the

that the Court is otherwise authorized to implement under various section of the Bankruptcy Code

and Bankruptcy Rules.

WAIVER OF BANKRUPTCY RULES 6004(a), 6004(h) AND 6006(d)

30. Given the nature of the relief requested herein, and to successfully implement the

Restructuring Transactions, the Debtors respectfully request a waiver of (i) the notice requirements

under Bankruptcy Rule 6004(a), (ii) the 14-day stay under Bankruptcy Rule 6004(h), to the extent

that either subsection of Rule 6004 is applicable, and (iii) the 14-day stay of an order applicable to

assignment of an unexpired executory contract under Bankruptcy Rule 6006(d), to the extent

applicable.


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NOTICE

31. Notice of this Motion has been given to (i) the Office of the United States Trustee

for Region 2; (ii) the Official Committee of Unsecured Creditors; (iii) CIT Group/Commercial

Services, Inc.; (iv) applicable governmental units; and (v) those parties who have filed a notice of

appearance and request for service of pleadings in these Chapter 11 Cases pursuant to Bankruptcy

Rule 2002. In light of the nature of the relief requested herein, the Debtors submit that no other or

further notice is required.

CONCLUSION

32. Based on the circumstances and authorities cited above, the Debtors respectfully

request that the Court enter an order, substantially in the form attached hereto as Exhibit A,

granting the Motion and granting the Debtors such other and further relief as it deems just.

Dated: May 22, 2020 SILLS CUMMIS & GROSS P.C.

/s/ S. Jason Teele S. Jason Teele, Esq. Gregory A. Kopacz, Esq. 101 Park Avenue, 28th Floor New York, New York 10178 (212) 643-7000 (Telephone) Proposed counsel to the Debtors and Debtors-in-Possession


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EXHIBIT A (Proposed Order)


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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

In re: THE NORTHWEST COMPANY, LLC, et al.6 Debtors.

Chapter 11 Case No. 20-10990 (MEW)

(Jointly Administered)

ORDER GRANTING MOTION OF THE DEBTORS FOR AN ORDER APPROVING AGREEMENT WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS GOVERNING (I) RULE 2004 INVESTIGATION AND (II) JOINT MARKETING AND

SALE PROCESS

Upon the motion of the above-captioned debtors and debtors-in-possession (collectively,

the “Debtors”), for entry of an order, pursuant to sections 105(a), 363(b) and 365(a) of Title 11 of

the United States Code, 11 U.S.C. §§ 101–1532 (the “Bankruptcy Code”), and Rules 2002, 2004,

6004 and 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”,)

approving an agreement between the Debtors and the Official Committee of Unsecured Creditors

(the “Committee”) governing (i) Bankruptcy Rule 2004 Investigation and (ii) Joint Marketing and

Sale Process; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334 and the Amended Standing Order of Reference from the United States District Court for the

Southern District of New York, dated January 31, 2012; and this Court having the power to enter

a final order consistent with Article III of the United States Constitution; and this Court having

found that venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C.

§§ 1408 and 1409; and this Court having found that the Debtors’ notice of the Motion and

opportunity for a hearing on the Motion were appropriate under the circumstances and no other

notice need be provided; and this Court having reviewed the Motion and having heard argument

6 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: The Northwest Company, LLC (8132) and The Northwest.com LLC (1339). The location of the Debtors’ service address is: 49 Bryant Avenue, Roslyn, New York 11576.


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with respect thereto at a hearing before this Court (the “Hearing”); and this Court having

determined that the legal and factual bases set forth in the Motion and at the Hearing establish just

cause for the relief granted herein; and upon all of the proceedings had before this Court; and after

due deliberation and sufficient cause appearing therefor, it is

ORDERED, ADJUDGED AND DECREED THAT:

33. The Motion is granted as set forth herein.

34. The Term Sheet attached to the Motion as Exhibit B is approved and the terms

thereof are incorporated herein.

35. The Committee shall be authorized pursuant to Fed. R. Bank. P. 2004 to investigate

all matters that it, in its sole discretion, deems relevant, including, but not limited to, allegations

of misconduct by Ross H. Auerbach, contained in the Joint Motion of Ashford Textile LLC and

Extreme Horse Limited for the Appointment of an Examiner and Related Relief (the

“Ashford/Extreme Motion”).

36. In accordance with its authority under Fed. R. Bank. P. 2004, the Committee is

authorized to do all of the following:

(a) Issue document requests to the Debtors;

(b) Notice the examination of any director, officer or employee of the Debtors; and

(c) issue subpoenas to non-parties for the production of documents and/or

examinations without further order or notice, except that the Committee shall serve a copy of any

subpoena on the Debtors through counsel;

37. The Debtors, and all of its directors, officers and employees, including Ross H.

Auerbach, are ordered to fully cooperate with the Committee’s investigation and will promptly

respond to requests for information and/or documents without compulsory process.

38. Counsel for the Debtors may attend and participate in any non-party deposition

noticed by the Committee. If a subpoena seeks the production of documents only, the Committee


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shall promptly provide a copy of all documents obtained in response to a subpoena to counsel for

the Debtors.

39. Nothing in the foregoing constitutes a waiver of rights by a third party receiving a

subpoena, including the right to object to a subpoena on any ground available to them.

40. The Committee is hereby granted exclusive standing to bring any cause of action,

and to settle any cause of action, it determines should be commenced based on the findings of the

investigation. The Committee shall give the Debtors no less than ten (10) business days’ written

notice prior to filing any action, stating generally, the name of the defendants, the factual

circumstances giving rise to a claim, and the causes of action plead.

41. The Debtors shall promptly file an application requesting authority to retain and

employ MMG Advisors (“MMG”) to serve as their investment banker.

42. The Debtors, upon consultation with and the consent of the Committee, shall

promptly file a motion or motions, as appropriate, to establish bid procedures, bid protections for

any potential stalking horse, scheduling an auction, and approving the sale, in accordance with and

including the terms set forth in, Section II of the Term Sheet.

43. The Debtors shall revise the proposed order granting its application to retain Clear

Thinking Group as financial advisor [Docket No. 73] to include the following provision:

Consistent with current practice, the Debtors, through their controller or chief financial officer, shall provide a weekly funding request to Clear Thinking Group for review, consultation and approval. Other than disbursements required by an order of the Court, the Debtor may disburse funds only for the purposes set forth in a weekly funding request reviewed and approved by Clear Thinking Group.

44. Any provision in the Term Sheet not specifically approved above is hereby

approved.

45. This Court shall retain exclusive jurisdiction to hear and determine any disputes

arising under this Order or the Term Sheet.


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May __, 2020 ______________________________________ Honorable Michael E. Wiles United States Bankruptcy Judge


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EXHIBIT B (Committee Correspondence)


May 15, 2020

VIA EMAIL

S. Jason Teele

Sills Cummis & Gross P.C.

One Riverfront Plaza

Newark, NJ 07102

Tracy L. Klestadt

Klestadt Winters Jureller Southard & Stevens, LLP

200 West 41st Street, 17th Floor

New York, NY 10036

Robert Stark

Brown Rudnick LLP

Seven Times Square

New York, NY 10036

Bernard D. Bollinger, Jr.

Buchalter, A Professional Corporation

1000 Wilshire Blvd., Suite 1500

Los Angeles, CA 90017

Re: In re The Northwest Company, LLC, No. 20-10990 (MEW) (Bankr. S.D.N.Y.)

Dear Counsel:

As you know, we represent the Official Committee of Unsecured Creditors of The Northwest

Company, LLC, et al. (the “Committee”). We write in response to the motion filed by Extreme

Horse Limited (“Extreme Horse”) and Ashford Textiles LLC (“Ashford”) on May 12, 2020

requesting the appointment of an examiner and/or trustee (the “Examiner/Trustee Motion”). While

the Committee does not believe that the appointment of either an examiner or trustee is necessary,

we agree that independent oversight of both the company and sales process is appropriate, and that

a comprehensive investigation should be conducted of the alleged self-dealing and

misappropriation of Company assets by Ross Auerbach and other insiders. Our proposal to address

all of these issues follows. In the event we are unable to reach a consensual resolution amongst

all parties, we will respond to the Examiner/Trustee Motion accordingly.

Request for Appointment of an Examiner

The Examiner/Trustee Motion raises valid points regarding the need for an investigation regarding

potential self-dealing and misappropriation of Company assets by Ross Auerbach and other

insiders; however, it wholly ignores the existence of another party already well-situated to conduct

an investigation—the Committee. While the Committee agrees that a thorough investigation into

potential causes of action against Ross Auerbach and other insiders is critical, the appointment of

an examiner is not necessary (nor mandatory) in this case. The issues Ashford and Extreme Horse

seek to have an examiner appointed to investigate are matters that creditors’ committees

customarily investigate and that the Committee will investigate, including the pre-petition

transactions involving Ross Auerbach or payments allegedly made on behalf of the Auerbach

family. As a fiduciary of the Debtors’ estates, the Committee is well-positioned and motivated to

Michael A. Kaplan Counsel

One Lowenstein Drive Roseland, New Jersey 07068 T: 973.597.2302 F: 973.597.2303 E: [email protected]


May 15, 2020 Page 2

conduct the requisite independent investigation. Any potential recovery would benefit not only

the Committee’s constituents, but all creditors in this case.

Indeed, the Estate will benefit from having the Committee fulfill this role as it will not only be

more cost effective for the Committee to conduct the investigation, but also save time as the

Committee—which has already served document requests to address the allegations raised—is

best suited to complete the work prior to the execution of any sale.

In our experience, examiners are a significant expense for the Debtors’ estates and are not the most

efficient vehicle for such investigations. At this early stage of the Debtors’ Chapter 11 cases,

appointing an examiner with a broad mandate and budget would substantially interfere with the

ongoing bankruptcy proceedings. Any examiner that is appointed presumably will retain a law

firm and also a financial advisor which, inevitably, will duplicate the efforts of the attorneys and

financial advisor retained by the Committee. Accordingly, it is our position that the Committee,

and not an examiner, should conduct an investigation into the relevant prepetition transactions.

The Committee proposes the following schedule for its investigation, and requests that all parties

consent to this schedule:

Document requests to be sent to the Debtors by May 22, 20201;

Document requests to be sent to Ross Auerbach, Northwest Textile Holdings, LLC, and

any other third parties by May 22, 2020;

Document productions to be substantially completed by June 12, 2020; and

Depositions and/or informal interviews to occur between June 22, 2020 and July 3, 2020.

The Committee will present its findings to all interested parties no later than July 17, 2020

(or earlier if the sales process dictates).

Request for Appointment of a Trustee

Likewise, the appointment of a Chapter 11 Trustee is unnecessary and financially imprudent.

While the Committee agrees that the sale process must be spearheaded by an independent director,

it recognizes there are more suitable and financially viable alternatives than appointing a Trustee.

The Committee, as an independent party and a fiduciary for all unsecured creditors, is well-

equipped to run the sale process. The Committee and its professionals already maintain a firm

grasp on the complexities of this case. Similarly, the Committee is inherently invested in

maximizing the value of the estate through a successful sale process. The appointment and

education of a Trustee would duplicate professionals’ efforts, delay the sale, and diminish the

estate’s resources. The Committee, however, has the requisite knowledge, resources, and

1 We recognize that Ashford and Extreme Horse served discovery demands on various parties on May 13, 2020.

We intend to evaluate those requests and supplement the Committee’s initial set document demands where

appropriate. We are also willing to meet and confer with Ashford and Extreme Horse to discuss the appropriate

scope of discovery.


May 15, 2020 Page 3

impartiality to conduct a successful sale with attunement to the best interests of the estate and the

parties in interest.

The Committee therefore proposes the following plan to guide the sale process, and requests that

all parties consent to such plan:

The Committee, in consultation with Extreme Horse and Ashford, will identify an

independent director to be appointed to the Debtor’s board who will have sole authority

over the sale process;

A chief restructuring officer will be named. The Committee submits that the Debtors’

financial advisor, Clear Thinking Group, possesses the qualifications to fill that role;

The Committee’s financial advisor will co-run a full sale process in conjunction with the

Debtor’s banker, assuming one is hired; and

Extreme Horse must waive its argument that its consent is required for the sale to take

place.

Accordingly, the Committee proposes the following to resolve the Examiner/Trustee Motion: (i)

the Committee will conduct a comprehensive investigation of pre-and post-petition conduct to

identify any causes of action that may exist; (ii) the Committee and its professionals, with the

cooperation of Extreme Horse and Ashford, will lead an objective and impartial sale process,

removed from any undue influence by Ross Auerbach and negotiated in the best interests of the

estate.

Please advise us as soon as possible if this proposal is acceptable.

Very truly yours,

/s/ Michael A. Kaplan

Michael A. Kaplan

cc: Jeffrey Cohen

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Kenneth Aulet

Brown Rudnick LLP

Seven Times Square

New York, NY 10036

Paul S. Arrow

Buchalter, A Professional Corporation

1000 Wilshire Blvd., Suite 1500

Los Angeles, CA 90017

John P. Madden

Emerald Capital Advisors

150 East 52nd Street, 15th Floor

New York, NY 10022


7241975 v3 7241975 v3 7241975 v3

EXHIBIT C (Term Sheet)






Jeffrey CohenCommittee Counsel

5/21/2020


Documents

SILLS CUMMIS & GROSS P.C. S. Jason Teele, Esq. · 2020-05-22 · 7241975 v3 7241975 v3 7241975 v3 SILLS CUMMIS & GROSS P.C. S. Jason Teele, Esq. Gregory A. Kopacz, Esq. 101 Park Avenue,