The going-out-of-business sale will start within the next two weeks at Rosa's Home Stores.
Rosa's five local stores are expected to close today while a liquidation firm, Planned Furniture Promotions, steps in to take inventory and gear up for a going-out-of-business sale that likely will begin within the next two weeks.
"We're hoping to open up as soon as possible," said Robert A. Boghosian, an attorney representing Planned Furniture Promotions.
The local furniture and electronics retailer won Bankruptcy Court approval Tuesday to launch its liquidation sale, overcoming objections from unsecured creditors who are unlikely to be paid more than pennies on the dollar.
Bankruptcy Court Judge Michael Kaplan approved the agreement, citing concern for the more than $430,000 in gift cards, refunds and deposits owed to Rosa's customers that will be fully paid under the terms of the deal.
"That's a major factor in my consideration," he said.
Had Kaplan not approved the agreement, it was possible that Rosa's would have run out of cash by Thursday and been forced to close immediately, turning a bankruptcy reorganization into a liquidation that could have denied customers access to their deposits and refunds and voided their gift cards.
Kaplan approved the agreement following a daylong hearing that led to a last-minute compromise that sweetened the pot slightly for Rosa's unsecured creditors. Those creditors, who stood to collect nothing under the original plan, now will share half of any money that remains in an account to cover customer refunds and deposits after the going-out-of-business sale ends.
The unsecured creditors and Bankruptcy Trustee Joseph Allen initially objected to Rosa's proposed liquidation sale, arguing that it was arranged before its Dec. 9 bankruptcy filing and didn't include an auction process that they claimed could have yielded more money that could have repaid creditors.
But with Rosa's burning through $80,000 to $100,000 in cash each week, the chain's dire economic condition left little time to rebid the liquidation sale.
Rosa's President Dean Rallo testified Tuesday that the chain likely would run out of cash and have to shut down within 10 to 14 days without court approval of the liquidation sale or the consent of First Niagara Financial Group, its largest secured creditor, to dip into its collateral to fund its operations.
The state Attorney General's Office, as well as Allen, had objected to the plan for Rosa's to hold a liquidation sale that would have lasted as long as 180 days, when state law only allows going-out-of-business sales to last a maximum of 60 days.
Rosa's liquidator, Planned Furniture Promotions, agreed to reduce the length of the sale to 135 days.
James Morrissey, an assistant state attorney general, argued that a longer liquidation sale would have been misleading to consumers, especially since Planned Furniture Promotions plans to supplement Rosa's inventory with additional items from other sources.
While state law prohibits liquidators from augmenting the inventory of retailers during going-out-of-business sales, Morrissey said the state would not object to selective restocking but opposed the broader-based inventory supplementing that Planned Furniture Promotions had sought. The liquidator agreed to mark supplemental inventory with different colored tags than those used on Rosa's items.
Rosa's had lost nearly $1.1 million during the first nine months of this year as the company grappled with sales that had "declined significantly" since early 2009, just months after the recession began battering the region.
With its business declining, Rosa's began working with a turnaround expert earlier this year and started contacting liquidators in late September and October after company executives concluded that the business no longer was viable amid competition from national retailers.
While Morrissey argued that the extended going-out-of-business sale would subject other local furniture retailers to unfair competition, Kaplan concluded that those concerns were outweighed by the full repayment of consumer claims.
Under the terms of the liquidation agreement, Planned Furniture Promotions will pay First Niagara a sum equal to 73 percent of the cost of Rosa's inventory before the going-out-of-business sale begins. That payment will cover "a significant portion" of Rosa's debt to First Niagara, which is secured by Rosa's assets and is first in line to be repaid, according to court papers.