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Borders, Once Second-Largest Bookseller, to Dissolve

Dec. 20 (Bloomberg) -- Borders Group Inc., the bankrupt bookseller, won court approval of the final details of its plans to dissolve, signaling the end of what was once the U.S.’s second-largest bookseller.

Borders had already liquidated its remaining 399 stores from July to September after failing to find a buyer. The 40-year-old bookstore chain, second only to Barnes & Noble Inc. in size, had 642 stores when it entered bankruptcy in February.

Bankruptcy Judge Martin Glenn finalized terms of creditor repayments today after five remaining objections were resolved. Liberty Mutual Insurance Company resolved a dispute over insurance policies, and the State of Michigan, which had a tax claim, also resolved its dispute.

“It’s unfortunate that the debtors were unable to reorganize as a going concern,” Glenn said.

“At the end of the day when it comes time for confirmation, the story is told by the voting,” said Andrew Glenn, a lawyer for the bankrupt company, and no relation to the judge. About 98 percent of creditors holding $211.5 million in debt of Borders Group had voted to accept the plan, according to court papers, a sign the company had done the right thing, Glenn said.

Unsecured Creditors

Unsecured creditors with $812 million to $850 million in claims will recover from 4 percent to 10 percent, probably “at the higher end of the range,” according to court papers. Andrew Glenn said today they may even exceed the range slightly.

The projected recovery doesn’t include proceeds from lawsuits. At most $2 million in secured claims remains and will be paid in full. Priority tax claims will consume $14 million.

Separately, the company won court approval to sell its 10 percent stake in Kobo Inc. The sale should bring in $27 million to $32 million if Borders can take advantage of tax laws to shield the gain, Andrew Glenn said.

Liquidators led by Hilco Merchant Resources and Gordon Brothers Retail Partners LLC U.S. had made the best offer for all the company’s inventory in July, after Borders failed to reach an agreement with the one bidder that offered to keep the company running, Phoenix-based private-equity firm Najafi Cos.

Inventory Value

The liquidators agreed to pay about 72 percent of the inventory’s cost value, which was estimated at $350 million to $395 million. The deal was approved over the objections of 99 landlords and creditors.

Money also came into the estate through a Sept. 14 auction which sold most of the company’s trademarks and intellectual property for $13.9 million to Barnes & Noble, based in New York. In addition to Borders’ trade names and the database, Barnes & Noble bought the Waldenbooks and Brentano’s marks. Including other asset sales, the auction brought in $15.8 million to Borders’ creditors.

Since the liquidation ended, the company has been resolving remaining issues with creditors; in November, it resolved a dispute with Random House Inc. by agreeing to give the publisher an unsecured claim of $800,000. The resolution will let Random House try to collect as much as $36.4 million.

The final terms of the liquidation approved today will distribute assets to creditors through a trust, run by a trustee, Curtis R. Smith, after assets are first distributed to priority claimants. The company will then dissolve.

Founded in 1971

Borders was based in Ann Arbor, Michigan, where Tom and Louis Borders founded the company with one location in 1971. At its height in 2005, Borders had more than 1,200 bookstores as far away as Singapore, 15,000 employees and annual sales of $4 billion.

Barnes & Noble Inc., the largest U.S. book chain, has about 1,341 stores, including 636 college bookstores, according to its website.

Borders lost business as customers switched to e-readers such as Inc.’s Kindle, introduced in 2007. Barnes & Noble invested in its own Nook device to attract customers.

The company’s initial Chapter 11 filing had listed assets of $1.28 billion and liabilities totaling $1.29 billion. Debt originally included $196 million on a revolving credit and $48.6 million on a term loan. Trade suppliers were owed $302 million for inventory.

The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at

To contact the editor responsible for this story: John Pickering at

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