In re Boxed, Inc., No. 23-10397 (Bankr. D. Del.)

  • New York based e-commerce and software company, Boxed, Inc., filed for bankruptcy after failing to generate needed capital in a 2021 SPAC.
  • Boxed, Inc. tried to sell its e-commerce retail business and its software and service business either together or separately in 2022, but despite an extensive process could not find a buyer.
  • Boxed, Inc. now hopes to sell its software company via a private sale in bankruptcy and wind down the e-commerce business. At the first day hearing, the bankruptcy court explained that approval will depend on the stance of a yet-to-be-appointed official committee of unsecured creditors.

The Filing: Boxed, Inc. and its subsidiaries (“Boxed”), recently filed for bankruptcy in the District of Delaware. Boxed operates two businesses: (1) an e-commerce retail service business providing bulk pantry consumables to businesses and household customers through orders placed over the Boxed website and app and (2) a software and services business (“Spresso”) which licenses Boxed’s e-commerce enabling software, data, and other technology. Boxed’s Chief Financial Officer submitted a first day declaration explaining the reasons for the Chapter 11 filing.

Why it Happened: According to the declaration, since inception in 2013 Boxed was able to improve its business but was always operating on a loss. Thus, the company relied on outside capital, both equity and debt, to fund itself. In 2022, Boxed began to face an unanticipated capital crunch in part due to a December 2021 SPAC transaction. that generated only a fraction of the capital Boxed was expecting ($85 million versus an anticipated $334 million). Boxed faced further headwinds after a combination of rising interest rates, persistent inflation, depressed customer retail spending, supply chain disruption, and increased competition left it unable to obtain needed capital.

Finding itself in breach of certain loan covenants, Boxed attempted amendments to its secured debt agreements while simultaneously seeking to raise additional capital from other potential third-party lenders. These initial efforts were not successful which led Boxed to begin a bidding process to sell its assets and business lines. Unfortunately for Boxed, despite contact with 170 potential buyers, it received no offers to purchase their e-commerce retail service and only one indication of interest for Spresso.

The Plan: Boxed intends to wind down its e-commerce business and sell Spresso via a private sale to a designee of its secured lenders. With its first day filings, Boxed also sought court approval for the private sale. If approved, a to-be-named entity owned and designated by Boxed’s prepetition first lien secured lenders (the “Purchaser”) would take ownership of Spresso after a credit bid of $26.25 million.

Boxed is convinced a private sale of Spresso to the Purchaser is the only viable option given their inability to find a buyer in 2022. Also, as the first day declaration argues, Boxed’s continuing operational losses and extensive cash burn means time is of the essence and a full-fledged auction of the business could drain the company of all available cash. The secured lenders also conditioned their consent to the use of cash collateral on the sale of Spresso being done by private sale. At the first day hearing, despite concerns that Boxed was asking for a “rapid timeline for significant relief,” the bankruptcy court nevertheless scheduled the sale hearing for April 26, 2023.

The WARN Act Class Action Adversary: Three days after Boxed filed for bankruptcy, a former employee brought a class action adversary proceeding against one of Boxed’s subsidiaries, Boxed, LLC, for violations of the federal and New York Worker Adjustment, Retraining and Notification Act, that Boxed failed to give its employees proper notice before terminating them. Without further court order, Boxed, LLC will respond to the Complaint by May 5, 2023.

Business Implications: An interested bidder for Spresso has until April 19, 2023 to object to the private sale, but given Boxed’s extensive pre-petition marketing, an alternative bidder is unlikely to emerge. If the private sale is approved, Boxed will then focus on liquidating its e-commerce assets. Since alternative buyers are somewhat unlikely, approval of the sale will depend on the stance of a yet-to-be-appointed official committee of unsecured creditors.

Compared to their traditional retailer competitors, e-commerce firms have fewer hard assets to liquidate. And based on Boxed’s failure to generate even a single bid for the retail business, it will likely have to sell off its pieces individually which may be of interest to bargain hunters in the retail space.