Buyk Corp.
CASE SUMMARY: Buyk to Sell Assets, Wind Down After Funding Sources Run Dry Upon Russian Invasion of Ukraine; Founders Unable to Transfer Funds Out of Russia
Fri 03/18/2022 17:36 PM
Buyk Chapter 11:
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Sale Motion
Buyk, an “ultra-high speed” grocery delivery business with 39 locations throughout New York City and Chicago, filed for chapter 11 protection on Thursday, March 17, in the Bankruptcy Court for the Southern District of New York, seeking to run a 60-day sale process and file a plan of liquidation. After funding sources ran dry upon Russia’s invasion of Ukraine and “relatively little cash on hand,” the debtor terminated “virtually all” of its employees and entered into a “relatively small” $6.5 million loan with Legalist DIP GP LLC to fund a liquidating chapter 11 case.
The Legalist loan was entered into prepetition, providing for a $4 million bridge loan with the sole purpose of paying wages for the debtor’s terminated employees and a $2.5 million DIP facility. The debtor’s goal is to “maximize the value of these assets in bankruptcy in order to repay the DIP Lender, administrative and priority claims and to, if possible, provide some level of distribution to unsecured creditors.”
The debtor stresses the need for a sale given the existence of perishable inventory and the “desperate need” to avoid administrative rents starting in April (many of the debtor’s leases are current through March 2022). April rent for the stores totals about $580,000 (in the aggregate). The debtor says that total sales are estimated to yield about $5.5 million to $5.8 million in gross proceeds.
A hearing on the debtor’s sale motion was held earlier today regarding the debtor’s planned auctions for the Brooklyn and Bronx, N.Y., stores scheduled for tomorrow, Saturday, March 19, and Monday, March 21, respectively. Judge Michael E. Wiles approved the debtor’s requested relief solely with respect to perishable inventory.
Debtor’s counsel said during today’s hearing that it is trying to keep all options open regarding the stores. For the inventory in particular, the debtor is working with a jobber on a potential “one-stop solution” for the inventory.
James Walker, the debtor’s CEO, discussed that there are potential lease acquirers and that there has not been a macro partner interested in the entire portfolio, but different groups have been potentially interested in sections of the portfolio. Groups interested in leases, he added, have had no real interest in acquiring anything but the space, saying that other ultra-fast grocery companies are already in the market, and so for other uses, parties would be interested in the “vanilla shell.”
The U.S. Trustee also spoke during today’s hearing, saying that it would be helpful to have input from an official committee of unsecured creditors on the parameters of the inventory sales.
The first day hearing is scheduled for Tuesday, March 22, at 2 p.m. ET, according to the court’s calendar. An initial case management conference is set for April 19 at 10 a.m. ET.
The petition reports $1 million to $10 million in both assets and liabilities, but the debtor’s list of largest unsecured creditors attached to the petition includes aggregate claims totaling more than $50 million. The company’s prepetition capital structure includes:
The debtor also says it anticipates “significant” claims arising from the rejection of leases.
The debtor’s assets include unencumbered “brand new (and almost new)” refrigeration and other food storage equipment with an $11 million book value, grocery items (including 20% perishable items) with a book value of $1.7 million and $700,000 in cash.
The debtor is represented by Akerman in New York. The case has been assigned to Judge Michael E. Wiles (case No. 22-10328).
Events Leading to Chapter 11 Filing
The debtor was initially funded by Russian-based investors that provided seed funding of $63.5 million in convertible notes and $11 million in unsecured loans. Around January, the debtor was in the process of seeking additional equity investment of approximately $250 million, but because of the “mounting indicia of a potential Russian dispute with Ukraine, the Debtor determined in January 2022 to pivot to a United States-based equity raise and actively sought series A funding from numerous institutional investors.”
According to the first day declaration of CEO James Walker, the U.S. fundraising was going “reasonably well” when Russia commenced its invasion of Ukraine on Feb. 24, at which point the debtor was “confronted with an existential and, ultimately, fatal crisis.” Walker explains that “any chance of obtaining equity or debt investment from the prominent institutional investors which had been interested in funding the Debtor was now lost.”
Further, the company is only in the beginning stage of growth and relies on cash infusions by its founders, which were hindered by restrictions on the ability to transfer funds out of Russia. The debtor says that the founders were not and are not subject to any sanctions.
Buyk has been pursuing an asset or stock sale to similar or “adjacent” businesses, or a rescue loan/equity investment since Feb. 28. “In light of the monthly deficiency between income and expenses, an impending payroll due on March 11, and other pressing obligations to creditors, plus the negative impact of the Russia/Ukraine crisis on investor interest,” the debtor also began seeking a loan to fund payroll and an orderly liquidation in bankruptcy, leading to entry into the term sheet with Legalist.
The Legalist commitment for a $6.5 million DIP loan was conditioned on a bankruptcy filing by March 15 (with a two-business-day grace period).
Background
Buyk, backed by $46 million in seed funding, launched its 15-minute grocery delivery service - offering groceries, household essentials, personal care and pet supplies via bicycle couriers - in New York in April 2021 and Chicago in November 2021. The service relied on a mix of contractors and the debtor’s own workforce for a total of more than 600 couriers and over 100 office workers.
The debtor issued WARN notices to all terminated employees on March 11.
According to the debtor, Buyk “was the latest entrant to the competitive field of ultrafast delivery firms cropping up in major metropolitan areas including New York.” One of the Buyk’s differentiating factors from its competitors was its real-time, in-house technology that gave the debtor the ability split larger orders up between multiple couriers if needed to meet the 26-pounds-per-courier maximum order weight and allowed Buyk to fulfill orders within two minutes and then deliver them in between five and 10 minutes.
As of Feb. 24, the debtor had 39 stores serving the New York and the Chicago metropolitan areas (31 in New York and eight in Chicago), each with 2,000 to 3,000 SKUs.
The Spoon has reported that Buyk’s founders - Rodion Shishkov and Slava Bocharov - are also the founders of Russian fast-grocery store Samokat.
The debtor's largest unsecured creditors are listed below:
DIP Financing Motion
The debtor requests approval of $6.5 million in senior secured DIP financing from Legalist as agent and lenders, consisting of a $4 million March 11 draw to fund payroll and $2.5 million to be drawn postpetition to fund a wind-down. The prepetition amounts would be rolled up into the DIP loan. The allocation of DIP commitments are as follows: (a) Legalist DIP Fund I LP ($4 million prepetition draw) and (b) Legalist DIP SPV II LP ($2.5 million postpetition draw).
According to the motion, the debtor entered into a term sheet with Legalist after discussions with more than 30 potential funding sources, including multiple potential DIP lenders.
The petition attaches a March 4 term sheet for prepetition and DIP financing from Legalist DIP GP LLC in the amount of $6.5 million, with the first $5 million prepetition draw to be used solely for the payment of salaries and/or compensation of all employees and couriers (who are independent contractors) and the postpetition draw consisting of the balance of the commitment. The loan would mature six months after the effective date of the loan or the debtor’s exit from bankruptcy.
The DIP financing bears interest at the U.S. prime rate (subject to a 4% floor) plus 11.75% to be compounded and capitalized monthly. For the default rate, 4.75% would be added. The loan matures on the earliest of six months after the effective date of the first DIP draw, the debtor’s exit from bankruptcy, repayment in full of all outstanding DIP loans or an event of default.
The facility includes various fees, including a 2.75% commitment fee, a 1.75% underwriting fee, 1.75% monitoring fee (PIK monthly) and an undrawn line fee of 4.75% to be compounded and capitalized monthly.
In addition, subject to the final order, the debtor proposes a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).
The carve-out is 2.5% of the DIP loan then outstanding, to be used for U.S. Trustee fees and “potential future fees, expenses, and costs of a statutory trustee appointed in the Debtor’s case.”
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
Sale Motion
The debtor seeks approval to implement emergency liquidation sale procedures and sale substantially all of its property. Buyk stresses the need for a quick sale by March 31 to avoid administrative rent expenses. “This economic pressure is most acute with respect to the sale of refrigeration equipment located in the actual store locations, where the net sales proceeds of relatively new equipment with an aggregate book value of $3.5 million will be severely diminished by the incurrence of all or a portion of administrative rent in April 2022,” the debtor adds.
The company says that “brand new” unused refrigeration equipment located in several warehouses has a book value of $7.5 million, for which the debtor may conduct the sale process into April. The debtor’s papers disclosed a value of $750,000, but during this afternoon’s hearing, debtor’s counsel clarified the amount.
The debtor retained two auctioneers that commenced marketing store inventory prepetition and seeks to retain a third. According to the motion, the debtor conducted a few auctions of inventory and equipment prepetition and has an auction for the contents of two stores in Brooklyn, N.Y., set for tomorrow, Saturday, March 19, and two stores in the Bronx, N.Y., for Monday, March 21, with the equipment at each store valued from $20,000 to $40,000 and inventory with an aggregate value of approximately $6,000 (of which 20% represents perishable items).
The company’s prepetition and DIP lender Legalist is supportive of the process and has no interest in exercising credit-bid rights. The debtor seeks to conduct sales without the “extensive reporting requirements and strict compliance” with Local Rule 6004, saying that though the assets as a whole are valuable, are not valuable enough on a per item basis to justify strict compliance with the rule. According to the motion, the “market” commission is 15% and seeks authority to retain auctioneers for a greater commission than the statutory tiers in Local Rule 6004.
The debtor says it intends to submit applications for retention of each of the auctioneers as soon as possible.
KEIP / KERP Motion
The debtor seeks approval of a key employee retention program and key employee incentive program for their remaining six employees. The KERP payments aggregate $153,203 per month, as shown below:
The KEIP covers six employees with an aggregate total payout of approximately $300,000 based on meeting the thresholds of (a) a sale of assets with an aggregate net value of $8 million or more and (b) distribution to unsecured creditors of 10% or more through confirmation of a plan of liquidation. The KERP/KEIP participants, upon completion of the required thresholds, would receive a percentage of the $300,000 equal to the percentage amount of the salary received by the participant after all salary to all of the participants has been calculated.
Other Motions
The debtor also filed various standard first day motions, including the following:
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Sale Motion
| Summary |
| Buyk is a bicycle courier grocery delivery business with 39 locations throughout New York City and Chicago |
| Initially funded by Russian-based investors, the company pivoted to U.S. equity raise and then lost a chance of investment from “prominent” institutional investors in the wake of Russia’s invasion of Ukraine |
| The debtor’s founders, which the company says are not sanctioned, were not able to transfer funds out of Russia |
| Requests approval of $6.5 million in DIP financing from Legalist, including a rollup of a $4 million prepetition bridge loan |
Buyk, an “ultra-high speed” grocery delivery business with 39 locations throughout New York City and Chicago, filed for chapter 11 protection on Thursday, March 17, in the Bankruptcy Court for the Southern District of New York, seeking to run a 60-day sale process and file a plan of liquidation. After funding sources ran dry upon Russia’s invasion of Ukraine and “relatively little cash on hand,” the debtor terminated “virtually all” of its employees and entered into a “relatively small” $6.5 million loan with Legalist DIP GP LLC to fund a liquidating chapter 11 case.
The Legalist loan was entered into prepetition, providing for a $4 million bridge loan with the sole purpose of paying wages for the debtor’s terminated employees and a $2.5 million DIP facility. The debtor’s goal is to “maximize the value of these assets in bankruptcy in order to repay the DIP Lender, administrative and priority claims and to, if possible, provide some level of distribution to unsecured creditors.”
The debtor stresses the need for a sale given the existence of perishable inventory and the “desperate need” to avoid administrative rents starting in April (many of the debtor’s leases are current through March 2022). April rent for the stores totals about $580,000 (in the aggregate). The debtor says that total sales are estimated to yield about $5.5 million to $5.8 million in gross proceeds.
A hearing on the debtor’s sale motion was held earlier today regarding the debtor’s planned auctions for the Brooklyn and Bronx, N.Y., stores scheduled for tomorrow, Saturday, March 19, and Monday, March 21, respectively. Judge Michael E. Wiles approved the debtor’s requested relief solely with respect to perishable inventory.
Debtor’s counsel said during today’s hearing that it is trying to keep all options open regarding the stores. For the inventory in particular, the debtor is working with a jobber on a potential “one-stop solution” for the inventory.
James Walker, the debtor’s CEO, discussed that there are potential lease acquirers and that there has not been a macro partner interested in the entire portfolio, but different groups have been potentially interested in sections of the portfolio. Groups interested in leases, he added, have had no real interest in acquiring anything but the space, saying that other ultra-fast grocery companies are already in the market, and so for other uses, parties would be interested in the “vanilla shell.”
The U.S. Trustee also spoke during today’s hearing, saying that it would be helpful to have input from an official committee of unsecured creditors on the parameters of the inventory sales.
The first day hearing is scheduled for Tuesday, March 22, at 2 p.m. ET, according to the court’s calendar. An initial case management conference is set for April 19 at 10 a.m. ET.
The petition reports $1 million to $10 million in both assets and liabilities, but the debtor’s list of largest unsecured creditors attached to the petition includes aggregate claims totaling more than $50 million. The company’s prepetition capital structure includes:
- Secured debt:
- Legalist: $4 million bridge loan
- Unsecured debt:
- Convertible notes: $63.5 million
- Other unsecured debt: $18 million
- Equity: The debtor’s equity is held as follows:
The debtor also says it anticipates “significant” claims arising from the rejection of leases.
The debtor’s assets include unencumbered “brand new (and almost new)” refrigeration and other food storage equipment with an $11 million book value, grocery items (including 20% perishable items) with a book value of $1.7 million and $700,000 in cash.
The debtor is represented by Akerman in New York. The case has been assigned to Judge Michael E. Wiles (case No. 22-10328).
Events Leading to Chapter 11 Filing
The debtor was initially funded by Russian-based investors that provided seed funding of $63.5 million in convertible notes and $11 million in unsecured loans. Around January, the debtor was in the process of seeking additional equity investment of approximately $250 million, but because of the “mounting indicia of a potential Russian dispute with Ukraine, the Debtor determined in January 2022 to pivot to a United States-based equity raise and actively sought series A funding from numerous institutional investors.”
According to the first day declaration of CEO James Walker, the U.S. fundraising was going “reasonably well” when Russia commenced its invasion of Ukraine on Feb. 24, at which point the debtor was “confronted with an existential and, ultimately, fatal crisis.” Walker explains that “any chance of obtaining equity or debt investment from the prominent institutional investors which had been interested in funding the Debtor was now lost.”
Further, the company is only in the beginning stage of growth and relies on cash infusions by its founders, which were hindered by restrictions on the ability to transfer funds out of Russia. The debtor says that the founders were not and are not subject to any sanctions.
Buyk has been pursuing an asset or stock sale to similar or “adjacent” businesses, or a rescue loan/equity investment since Feb. 28. “In light of the monthly deficiency between income and expenses, an impending payroll due on March 11, and other pressing obligations to creditors, plus the negative impact of the Russia/Ukraine crisis on investor interest,” the debtor also began seeking a loan to fund payroll and an orderly liquidation in bankruptcy, leading to entry into the term sheet with Legalist.
The Legalist commitment for a $6.5 million DIP loan was conditioned on a bankruptcy filing by March 15 (with a two-business-day grace period).
Background
Buyk, backed by $46 million in seed funding, launched its 15-minute grocery delivery service - offering groceries, household essentials, personal care and pet supplies via bicycle couriers - in New York in April 2021 and Chicago in November 2021. The service relied on a mix of contractors and the debtor’s own workforce for a total of more than 600 couriers and over 100 office workers.
The debtor issued WARN notices to all terminated employees on March 11.
According to the debtor, Buyk “was the latest entrant to the competitive field of ultrafast delivery firms cropping up in major metropolitan areas including New York.” One of the Buyk’s differentiating factors from its competitors was its real-time, in-house technology that gave the debtor the ability split larger orders up between multiple couriers if needed to meet the 26-pounds-per-courier maximum order weight and allowed Buyk to fulfill orders within two minutes and then deliver them in between five and 10 minutes.
As of Feb. 24, the debtor had 39 stores serving the New York and the Chicago metropolitan areas (31 in New York and eight in Chicago), each with 2,000 to 3,000 SKUs.
The Spoon has reported that Buyk’s founders - Rodion Shishkov and Slava Bocharov - are also the founders of Russian fast-grocery store Samokat.
The debtor's largest unsecured creditors are listed below:
| Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Grayskies Ltd. | British Virgin Islands | Convertible
Promissory Note |
$ 15,000,000 |
| MVOF LP | Cayman Islands | Convertible
Promissory Note |
14,500,000 |
| Smart Retail LLC | St. Petersburg, Fla. | Convertible
Promissory Note |
11,000,000 |
| Citrus | British Virgin Islands | Convertible
Promissory Note |
10,000,000 |
| FRV | Cayman Islands | Convertible
Promissory Note |
9,000,000 |
| Pinkback LLC | Lewes, Del. | Convertible
Promissory Note |
6,000,000 |
| SBT Venture Fund II LP | Cayman Islands | Convertible
Promissory Note |
5,000,000 |
| Sienia Construction Inc. | Astoria, N.Y. | Trade | 1,771,387 |
| LVL1 Investments Ltd | Limassol, Cyprus | Convertible
Promissory Note |
1,000,000 |
| Malamet SDN. BHD | Kuala Lumpur, Malaysia | Convertible
Promissory Note |
1,000,000 |
| Pro-Motion Ltd. | Hong Kong | Trade | 1,000,000 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Counsel | Mark S. Lichtenstein | Akerman | New York |
| John H. Thompson | Washington | ||
| Debtor's Accountant | Dmitry Goykhman | Dmitry Goykhman | New York |
DIP Financing Motion
The debtor requests approval of $6.5 million in senior secured DIP financing from Legalist as agent and lenders, consisting of a $4 million March 11 draw to fund payroll and $2.5 million to be drawn postpetition to fund a wind-down. The prepetition amounts would be rolled up into the DIP loan. The allocation of DIP commitments are as follows: (a) Legalist DIP Fund I LP ($4 million prepetition draw) and (b) Legalist DIP SPV II LP ($2.5 million postpetition draw).
According to the motion, the debtor entered into a term sheet with Legalist after discussions with more than 30 potential funding sources, including multiple potential DIP lenders.
The petition attaches a March 4 term sheet for prepetition and DIP financing from Legalist DIP GP LLC in the amount of $6.5 million, with the first $5 million prepetition draw to be used solely for the payment of salaries and/or compensation of all employees and couriers (who are independent contractors) and the postpetition draw consisting of the balance of the commitment. The loan would mature six months after the effective date of the loan or the debtor’s exit from bankruptcy.
The DIP financing bears interest at the U.S. prime rate (subject to a 4% floor) plus 11.75% to be compounded and capitalized monthly. For the default rate, 4.75% would be added. The loan matures on the earliest of six months after the effective date of the first DIP draw, the debtor’s exit from bankruptcy, repayment in full of all outstanding DIP loans or an event of default.
The facility includes various fees, including a 2.75% commitment fee, a 1.75% underwriting fee, 1.75% monitoring fee (PIK monthly) and an undrawn line fee of 4.75% to be compounded and capitalized monthly.
In addition, subject to the final order, the debtor proposes a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).
The carve-out is 2.5% of the DIP loan then outstanding, to be used for U.S. Trustee fees and “potential future fees, expenses, and costs of a statutory trustee appointed in the Debtor’s case.”
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- March 22: Entry of the interim DIP order; and
- April 19: Entry of the final DIP order.
Sale Motion
The debtor seeks approval to implement emergency liquidation sale procedures and sale substantially all of its property. Buyk stresses the need for a quick sale by March 31 to avoid administrative rent expenses. “This economic pressure is most acute with respect to the sale of refrigeration equipment located in the actual store locations, where the net sales proceeds of relatively new equipment with an aggregate book value of $3.5 million will be severely diminished by the incurrence of all or a portion of administrative rent in April 2022,” the debtor adds.
The company says that “brand new” unused refrigeration equipment located in several warehouses has a book value of $7.5 million, for which the debtor may conduct the sale process into April. The debtor’s papers disclosed a value of $750,000, but during this afternoon’s hearing, debtor’s counsel clarified the amount.
The debtor retained two auctioneers that commenced marketing store inventory prepetition and seeks to retain a third. According to the motion, the debtor conducted a few auctions of inventory and equipment prepetition and has an auction for the contents of two stores in Brooklyn, N.Y., set for tomorrow, Saturday, March 19, and two stores in the Bronx, N.Y., for Monday, March 21, with the equipment at each store valued from $20,000 to $40,000 and inventory with an aggregate value of approximately $6,000 (of which 20% represents perishable items).
The company’s prepetition and DIP lender Legalist is supportive of the process and has no interest in exercising credit-bid rights. The debtor seeks to conduct sales without the “extensive reporting requirements and strict compliance” with Local Rule 6004, saying that though the assets as a whole are valuable, are not valuable enough on a per item basis to justify strict compliance with the rule. According to the motion, the “market” commission is 15% and seeks authority to retain auctioneers for a greater commission than the statutory tiers in Local Rule 6004.
The debtor says it intends to submit applications for retention of each of the auctioneers as soon as possible.
KEIP / KERP Motion
The debtor seeks approval of a key employee retention program and key employee incentive program for their remaining six employees. The KERP payments aggregate $153,203 per month, as shown below:
The KEIP covers six employees with an aggregate total payout of approximately $300,000 based on meeting the thresholds of (a) a sale of assets with an aggregate net value of $8 million or more and (b) distribution to unsecured creditors of 10% or more through confirmation of a plan of liquidation. The KERP/KEIP participants, upon completion of the required thresholds, would receive a percentage of the $300,000 equal to the percentage amount of the salary received by the participant after all salary to all of the participants has been calculated.
Other Motions
The debtor also filed various standard first day motions, including the following:
- Motion to pay employee wages and benefits
- The debtor estimates that it has approximately $70,000 to $72,000 of unpaid wage obligations, excluding payroll taxes and deductions.
- Motion to use cash management system
- The company has bank accounts with Citibank and JPMorgan Chase.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtor’s tax obligations include $30,000 on account of sales taxes and $10,000 with respect to franchise taxes and annual reporting taxes.
- Motion to provide utilities with adequate assurance
- Motion to establish reclamation procedures
- Motion to extend the schedules filing deadline to May 2
- Application to employ Dmitry Goykhman as accountant
- Application to employ Akerman as counsel
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