Fri 09/17/2021 15:57 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
First Day Hearing Notice

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Debtor is the U.S. retail arm of Australian women’s activewear brand Lorna Jane and operated 21 stores before closing all of them due to the pandemic
Seeks to restructure by rejecting leases for all retail boutiques
Failed to achieve out-of-court restructuring with landlords

Garden City, Calif.-based Lorna Jane USA Inc., which serves as the U.S. retail arm for Lorna Jane, an Australian women’s activewear retail brand, filed for chapter 11 protection on Thursday, Sept. 16, in the Bankruptcy Court for the Central District of California, seeking to restructure by rejecting the leases for its retail boutiques to adapt to the shift in online purchasing.

The debtor previously operated 21 retail stores, all of which were closed prepetition. The first day declaration of Richard Munro, CEO of Invenz, Inc. and CRO of the debtor, says the company believes that pandemic-driven changes in consumer shopping habits that spurred the store closures “will endure even after the pandemic subsides, continuing to impact brick-and-mortar retail into the future.”

Through chapter 11, the debtor intends to restructure, stating that the primary goal of the bankruptcy proceeding is “to right-size its United States presence in part by rejecting all retail boutique store leases to enable the Debtor to better adapt and cultivate sustained profitability in light of the increasing shift to online purchasing and the impact of the Covid-19 pandemic on brick-and-mortar retail sales.”

The first day hearing has been scheduled for Wednesday, Sept. 22, at 12 p.m. ET.

The company reports $6.8 million in assets and $48.7 million in liabilities. Excluding insider/affiliate claims, the debtor’s liabilities total $5.1 million.

  • Secured debt: None (except for a $9,000 claim for two months’ rent for a balance of lien due to store abandonment)

  • Unsecured debt:

    • LJ USA Holdings, Inc.: $32.3 million

    • Lorna Jane PTY Ltd: $9.9 million

    • PPP loan: $1.2 million

    • Lease obligations: The aggregate amount of annual and monthly gross rent due to landlords on all leases is approximately $4.4 million and $365,263, respectively. As of Aug. 31, the debtor’s total remaining lease obligations under the terms of its current leases are approximately $14.9 million. The debtor is currently $2.1 million in arrears on its leases. The debtor says it anticipates that the total amount of unsecured claims would increase as leases are rejected.

  • Equity: The debtor is the wholly-owned subsidiary of LJ USA General Partnership, which is in turn owned equally by LG GP No. 1 Pty and LG GP No. 2 Pty, both organized under the laws of Australia, which are in turn wholly owned by Lorna Jane PTY Ltd, which is also organized under the laws of Australia, and headquartered in Brisbane, Australia. LJ USA General Partnership, Lorna Jane PTY Ltd and their affiliates have not commenced chapter 11 or insolvency proceedings.

Other than sales revenue, the debtor’s primary financing source is Lorna Jane PTY Ltd, the debtor’s ultimate parent, and “sister-company” LJ USA Holdings Inc., which is a wholly owned subsidiary of LJ USA General Partnership, the debtor’s direct parent. The parent companies, owed a total of $42.1 million, have provided capital assistance to the debtor over the years in the form of periodic unsecured loans to fund operating shortfalls. Beyond these claims, the debtor’s largest liability is to its landlords. Additional unsecured claims are “minimal” and include trade and vendor debt that have been typically paid as their debts have come due.

The debtor has approximately $1.7 million of unencumbered cash on hand, which it says it intends to use to pay tax and employee obligations.

The debtor is represented by Winthrop Golubow Hollander in Newport Beach, Calif. The case has been assigned to Judge Neil W. Bason.

Events Leading to the Bankruptcy Filing

“Like most retailers in the United States,” the debtor says its business has been hampered by the Covid-19 and related delta variant pandemic, which has “significantly limited retail operations throughout the country and suppressed consumer willingness to shop in person.”

The debtor says that the pandemic has suppressed consumer willingness to shop in person, particularly in indoor malls where most of the debtor’s retail boutiques are located and social distancing is difficult. “Consequently, consumer habits have changed and there has been a decided accelerating shift away from in-person retail shopping in favor of online purchasing that is predicted to endure even after the pandemic subsides,” the company adds.

“The world has been forever changed by the pandemic,” and the debtor says it is now “saddled with hefty lease obligations that were entered into under circumstances completely different from where we are today, under which the societal altering impact of the pandemic was never anticipated.” The pandemic has expedited pre-existing issues impacting the brick-and-mortar retail industry, which the debtor says further highlights “that the lease obligations have become an albatross around the Debtor’s neck.” The company cites the recent bankruptcies of J. Crew, True Religion, Lucky Brand Dungarees, Brooks Brothers, Tuesday Morning, Sur La Table and Guitar Center and notes that several of these retailers have specifically sought lease rejections to help right-size and sustain their businesses in light of the pandemic. The company also cites retail bankruptcies preceding the pandemic, including Payless, which shut down all of its 2,100 stores, and Toys “R” Us, which closed 735.

In response to these market conditions, the debtor negotiated diligently with landlords to circumvent an in-court restructuring. “Unfortunately, the Debtor was unable to execute a satisfactory out-of-court restructuring as landlords generally exhibited reluctance to negotiate long-term adjustments to leases,” the declaration says. Seven landlords have commenced actions against the debtor for amounts due under leases, and others have issued demand letters. The debtor did not pay any rent obligations in September and did not remit rent on certain other leases in prior months. However, the debtor has generally paid its vendors, suppliers, service providers and trade creditors in the ordinary course of its business.


The debtor, formed in 2011, is a women’s athletic apparel and accessories retailer that was established to sell and promote the “internationally renowned” Lorna Jane products brand in the U.S. The company sells a wide range of “high-quality affordable” women’s athletic apparel and accessories for active living, including collections offered for yoga, running, gym and cross-training, tennis, travel, maternity, lifestyle and work from home. Through its website, and until recently through its boutiques, the debtor sells Lorna Jane branded products that are designed in Australia and manufactured in China.

For the fiscal year beginning July 5, and ending Aug. 29, the debtor’s net sales were approximately $1.5 million, down from approximately $2.9 million in net sales for the same period in fiscal 2020.

“Although the Debtor was experiencing a shift to e-commerce sales prior to the COVID-19 pandemic, the trend greatly accelerated during the pandemic due to emergency government orders closing or limiting retail store operations for prolonged periods and general consumer reluctance to shop in person,” the debtor says. In 2019, brick-and-mortar retail sales made up 69% of the debtor’s overall sales. For 2020, “a time nearly entirely encompassing the pandemic,” brick-and-mortar retail sales declined by 56% and made up just 49% of the debtor’s total sales. E-commerce sales have “dramatically” increased by 62% in 2020.

The debtor's largest unsecured creditors are listed below:


10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
LJ USA Holdings Inc. Brisbane, Australia Intercompany $    32,292,117
Lorna Jane Pty Ltd Brisbane, Australia Intercompany 9,852,744
Move Nourish Believe Pte Ltd Brisbane, Australia Intercompany 1,319,617
US Small Business Administration Cincinnati PPP Loan 1,188,265
Bellevue Square, LLC Bellevue, Wash. Back Rent 747,425
DSC America Inc. Beverly Hills, Calif. Lease 548,611
Unexpired Gift Cards N/A Gift Vouchers 526,614
213 Manhattan Bch Blvd Ptnrs LLC El Segundo, Calif. Back Rent 343,069
Century City Mall LLC Los Angeles Back Rent 241,748
Macerich Santa Monica LP Santa Monica, Calif. Back Rent 230,059

The case representatives are as follows:


Role Name Firm Location
Debtor's Counsel Richard H. Golubow Winthrop
Newport Beach, Calif.
Peter W. Lianides
Debtor's CRO Richard Munro Invenz Los Angeles
United States
Dare Law Office of the
U.S. Trustee
Los Angeles

Other Motions

The debtor also filed various standard first day motions, including the following:

  • Motion to reject leases

    • As a result of identifying all of its retail store leases as burdensome prepetition, the debtor seeks to reject the leases of all 21 of its retail boutiques.

  • Motion to pay employee wages and benefits

    • The debtor’s first post-petition payroll is scheduled for Sept. 23, which would cover the Sept. 6 - Sept. 19 period. The total amount expected to be paid is $20,910, of which approximately $11,400 is for compensation earned prepetition. The debtor will owe approximately $7,500 on Sept. 23, of which approximately $4,100 is for payroll taxes for employee compensation earned prepetition (of that amount, approximately $2,700 is for statutory deductions and $1,400 is for employer taxes). The debtor estimates that it also owes less than $10,000 in unreimbursed employee expenses.

  • Motion to use cash management system

    • The company has bank accounts with US Bank, Union Bank and Bank of Hawaii.

  • Motion to pay taxes and fees

    • The debtor says it believes that it is current with respect to its payment of sales and use taxes; “however the Debtor estimates that $95,058 in Sales and Use Taxes will be owed for the month of August and for the pre-petition portion of September and payable after the Petition Date.”

  • Motion to honor customer programs

    • The open balance in connection with the debtor’s gift card program as of the petition date is approximately $526,614.

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