Workers at bankrupt retail chain were promised a bonus to show up during its liquidation sale. But now they won’t be paid

At the start of a court hearing Wednesday, a disagreement between company managers and the lender who funded the chain’s liquidation threatened to obstruct paychecks for about 1,500 store employees until US Bankruptcy Judge Thomas M. Horan vowed to reject all lawyer fees unless the workers were paid. 

The dispute left the decision about the final paycheck of some of the company’s office workers in limbo.

“Clearly there are a series of problems that led to the situation we find ourselves in today,” Horan said during an unusual court hearing in Wilmington, Delaware. 

The issue that erupted in court Wednesday was the result of miscommunication between the company and the professional liquidator — Hilco Merchant Resources — hired to organize the going-out-of-business sales, Christmas Tree attorney Harold Murphy told Horan in court. Bonuses had been approved for workers in the first ten stores that were liquidated, so managers “assumed” they could promise other store employees the same, Murphy said.

“They mistakenly understood that,” he said.

Last month, Christmas Tree Shops gave up trying to save itself while in bankruptcy and began liquidating all of its stores. In May, the chain had more than 80 stores located in 20 states when it filed its Chapter 11 case with plans to reorganize and try to find a buyer.

Lender attorney Gregg M. Galardi blamed the mix-up over the bonuses and the difficulty in paying headquarters workers on management errors. The managers failed to follow their own budget and then expected the lenders to pay the excess, he said. 

Horan halted the proceedings shortly after the dispute surfaced and ordered the two sides to try to find a solution. When they returned to court in the afternoon, the lender agreed to release more than $1 million to pay the store employees, but balked at the bonuses and put off a decision about final paychecks for office employees at the company’s headquarters in Middleborough, Massachusetts.

But both sides agreed to try to find a way to pay the office workers after managers step aside for a court-approved trustee who will wind down the company’s affairs. The judge approved a request to convert the case from a Chapter 11 bankruptcy — in which managers retain control — to a Chapter 7 liquidation, in which they are supplanted by a trustee.

Horan said his understanding of the deal to pay store workers means that headquarters employees are likely to be paid eventually as well.

Christmas Tree Shops filed bankruptcy less than three years after being sold by Bed Bath & Beyond, which itself closed its stores after the big-box retailer filed Chapter 11 in April.