Bankruptcy court extends FHI deadlines; grants motion to pay employees, honor customer programs

In the first court hearing in the Ch. 11 bankruptcy reorganization filed by Fitness Holdings International, the court granted all requests and motions filed by the company, despite objections by the court trustee that insufficient backup was supplied.
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In the first court hearing in the Ch. 11 bankruptcy reorganization filed by Fitness Holdings International, the court granted all requests and motions filed by the company, despite objections by the court trustee that insufficient backup was supplied.

Fitness Holdings International (FHI) on Oct. 20 filed for reorganization in a move that affected all its remaining 111 Omni Fitness and Busy Body Home Fitness stores in 14 states. The filing claimed 270 employees, more than 600 creditors, assets between $10 million and $50 million and liabilities between $50 million and $100 million for the Long Beach, Calif.-based, corporation own by Hancock Park (www.hpcap.com).

The U.S. Bankruptcy Court, Central District of California, Los Angeles, moved in an afternoon hearing Oct. 23 to:

>> Extend the Nov. 4 deadline for FHI to file its statements of affairs, financial schedules and other court-mandated documents in a Ch. 11 filing by 30 days to Dec. 4, noting "sufficient cause has been shown" for the extension.

>> Allow the company to honor customer obligations as requested in an emergency motion also filed Oct. 20. Those obligations include gift cards, merchandise returns, credits, refunds and charge-card credits. "Such authorization is necessary and appropriate in order to enable the debtor to continue its business operations without substantial disruption and in order to avoid jeopardizing the debtor's ability to maximize the value of the estate," the request stated.

"The success of the debtor's operations and the maximizing of the value of the property of the debtor's estate are dependent upon the patronage, confidence and loyalty of the debtor's customers," the request told the court, adding that those would be harmed if the company could not honor existing customer obligations to meet competitive pressures, preserve the value of the business, generate goodwill and maintain existing customers as well as attract new ones.

The court in its approval noted the facts and circumstances were good cause and granted the approval to honor customer programs, although noting it was "authorized but not directed" to do this.

>> Grant the company the authority to pay pre-petition employee compensation, benefits, accrued vacation and other claims. The court in its approval noted the debtor is not authorized to pay any employee claims for an employee who is not currently employed or has provided notice to the debtor that he or she intends to leave.

As a part of the approval, the court has directed banks to honor prepetition checks and to allow the company access to and control over its funds. FHI pointed out in its emergency motion on this that it has enough funds to meet Oct. 22 payroll of about $500,000, as well as the payroll expected to be due Nov. 7. In court filings, the company noted that it has the ability to continue to operate the business "without rendering the estate administratively insolvent."

Topping the list of the largest unsecured creditors: Life Fitness with its debt listed as $1.3 million, Aerobics Inc. next with nearly $1.1 million listed as due, and Precor noted as third-largest with an amount due the company stated as $749,304. The case is the largest retail bankruptcy to hit the fitness industry since 2001, the last time the then-Busy Body company, under different ownership, filed bankruptcy.

For the text of the email sent to stores and employees on Oct. 21 announcing the bankruptcy filing and more background on the company and the case, click here to read an Oct. 21 SNEWS® story, "Omni/Busy Body Home parent FHI files Ch. 11 reorganization for entire group, plans sale of stores."

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