In its second trip through bankruptcy court in less than a year, JOANN Inc. is seeking approval for a liquidation plan that would wind down the 80-year-old crafting retailer's operations. The company filed its Disclosure Statement for the Amended Joint Chapter 11 Plan on May 5, 2025, outlining how it intends to distribute proceeds from ongoing store liquidations to creditors after failing to stabilize its business following its previous bankruptcy emergence.
The Delaware bankruptcy court will consider the plan at a hearing scheduled for July 10, with creditors facing a June 30 voting deadline. The disclosure statement details how JOANN, which was once the nation's category leader in sewing and fabrics, collapsed just months after emerging from its prior Chapter 11 case in April 2024.
"Post-emergence challenges, including the prolonged impact of a sluggish retail economy, put JOANN back into an untenable debt position," the company explained in the disclosure statement filed in the United States Bankruptcy Court for the District of Delaware.
JOANN and its debtor affiliates filed for Chapter 11 protection on January 15, 2025 (Case No. 25-10068), less than nine months after emerging from its previous bankruptcy. The company entered bankruptcy with approximately $615.7 million in total funded debt obligations, including $352.4 million under its ABL Facility, $109.9 million under its FILO Term Loan Facility, and $153.4 million under its Term Loan Facility.
Liquidation Process Already Underway
Unlike its previous bankruptcy, which aimed to restructure and continue operations, JOANN is now liquidating. The company has already entered into an agreement with GA Joann Retail Partnership, LLC (the "Purchaser") following a competitive auction held February 21-22, 2025. The bankruptcy court approved this "GA Transaction" on February 26, 2025.
"Having completed the GA Transaction, the Plan's primary objective is to maximize value for all stakeholders and to distribute property of the Estates that is or becomes available for distribution in accordance with the priorities established by the Bankruptcy Code," the disclosure statement noted.
The plan calls for the appointment of a Plan Administrator to wind down JOANN's affairs, pay and reconcile certain claims, and administer the plan. It also establishes a GUC Trust for the benefit of holders of General Unsecured Claims and Prepetition Term Loan Deficiency Claims.
Recovery Expectations
The disclosure statement outlines projected recoveries for different creditor classes:
- Secured Creditors and Priority Claims: Expected to receive 100% recovery
- Prepetition Term Loan Claims (Class 3): Recovery percentage not specified but will share in proceeds up to allowed claim amount
- General Unsecured Claims (Class 4): Expected to receive only 0-1% recovery
- Shareholders (Class 7): Will receive nothing as their interests are cancelled
The plan incorporates a Committee Settlement that provides for several key reserves and payments, including a $9 million reserve for Allowed Stub Rent payments, a $30 million reserve for payment of Allowed 503(b)(9) Claims, a $1.5 million guarantee to the GUC Trust, and a $1 million payment to the GUC Trust from certain fees.
What Led to JOANN's Second Bankruptcy
The disclosure statement reveals how quickly JOANN's post-emergence plans unraveled. Despite emerging from its prior bankruptcy with a "de-levered capital structure and a plan to reduce overhead expenses, right-size its workforce, establish competitive pricing strategies, and capitalize on JOANN's loyal customer base and steady revenue streams," the company faced immediate challenges.
Among the key factors that led to the second filing:
- Persistent inflation and high interest rates creating a stagnant retail economy
- Suppliers halting production of key JOANN retail items after the first bankruptcy
- Tighter credit limits, shortened payment terms, and increased prices from vendors
- Inventory and restocking challenges that caused in-stock levels to fall below 90% - "the lowest levels the Company has experienced in over a decade"
- Competition announcing lower prices on over 5,000 similar items
"Revenue and profitability fell linearly with the record-low in-stock levels, making it difficult to service even the restructured debt load resulting from the Prior Cases," the disclosure statement explained. "By the time the Company turned around in-stock levels, liquidity constraints did not allow the Company to service its debt load while responsibly operating the business."
JOANN's Legacy
The filing provides historical context about JOANN, which began in 1943 when German immigrants founded the "Cleveland Fabric Shop" in Cleveland, Ohio. By 1963, the company had grown to 18 stores and was renamed "Jo-Ann Fabrics." It became a public company in 1969, joining the New York Stock Exchange in 1976. By 1998, JOANN had become the largest fabric and crafts retailer in the United States.
The COVID-19 pandemic initially provided a sales boost, with a 23.5% increase from fiscal year 2020 to fiscal year 2021, as consumers purchased supplies for DIY projects and masks. The company went public again in March 2021 but later went private following its first bankruptcy in 2024.
Jeffrey Dwyer, JOANN's Interim Chief Executive Officer, signed the disclosure statement on behalf of the company. The debtors are represented by Kirkland & Ellis LLP and Cole Schotz P.C.
Creditors and other parties have until June 27, 2025, to object to the plan, with the bankruptcy court scheduled to consider final approval at the July 10 hearing.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 70 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.