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November 02. 2013 6:56PM

Building 19 chain files for bankruptcy

Building 19 Inc., the New England store chain that made its reputation by advertising "good stuff cheap," has filed for bankruptcy protection in Massachusetts.

The company and its affiliates are seeking permission to conduct "going out of business" sales to liquidate assets, according to court documents filed Friday in U.S. Bankruptcy Court in Boston.

Building 19, founded in 1966 to sell items salvaged from fires, floods and other disasters, operates seven discount stores in Massachusetts, two in Rhode Island and one at the East Side Plaza in Manchester.

In its filing for Chapter 11 protection, lawyers for Building 19 blamed online shopping for its demise. "The advent of Internet shopping has dramatically altered the retail landscape, particularly for so-called 'big box' stores...," they wrote.

Declining sales, they said, "eroded Building 19's working capital," and that left the company unable to purchase enough inventory.

"Since much of Building 19's inventory consists of surplus, salvage goods, overstocks, closeouts and irregulars that become available erratically, Building 19's business model relies, in part, on having sufficient working capital on hand to make erratic inventory purchases. Building 19's lack of working capital impaired its ability to capitalize on erratic opportunities to purchase inventory."

Employees at two Building 19 stores seemed unaware of what's coming.

A manager at the Manchester store on Saturday referred questions to the company's Hingham, Mass., central office, but she said rumors that the store was closing were "not true."

"We are in business. We are open and the employees are all working today," she said.

And a store manager in Weymouth, Mass., who gave his name only as "Raj," said he hadn't heard anything about the store going out of business. "It's news to me," he said.

"The truth is we are still open, we are here at work and we are doing normal business as usual," he said.

In its bankruptcy filing, the company is seeking the court's permission to pay its employees any outstanding wages and benefits through Nov. 3 and to honor unused vacation and sick time that accrued through Friday.

Building 19 has 99 full- and part-time employees, mostly in Massachusetts, and its affiliates, which operate departments within the retail stores, employ 31.

Court records show that Building 19 and its affiliates have signed a contract with Gordon Brothers Retail Partners LLC to conduct "going out of business" sales at the company's stores. Building 19 has asked the bankruptcy court to approve that agreement and allow the sales to proceed.

The company owns no real estate, but leases its store locations, corporate headquarters and warehouse, according to court documents. It valued its tangible assets, primarily inventory, at $2.25 million and listed its affiliates' assets at $770,000.

The company's unsecured debt includes $15.5 million owed to affiliates under licensing agreements; and about $40 million in unpaid rent and other charges under its leases.

It also owes sales taxes to Massachusetts and Rhode Island in the amounts of $136,000 and $30,000, respectively. The company's affiliates owe an additional $32,000 in sales taxes.

The company's secured debt includes a $2.9 million loan from the company's president for "working capital" and a similar loan by other company "insiders" in the amount of $2.7 million, according to court records.



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