The business traces to a closeout and salvage retailer founded in 1954 and built into a regional off-price chain selling overstock and distressed merchandise through the Dirt Cheap, Treasure Hunt, and Dirt Cheap Building Supplies banners. KKR & Co. acquired the company in 2015, and the private equity firm later added a further investment and new executive leadership in early 2022 as it sought to expand the Channel Control Merchants platform.
Ownership changed again in May 2023, when a private investor group that included Hilco Global and Behrens Investment Group purchased the business. As described in the First Day Declaration of Jeffrey Martin, the corporate structure placed HDC Holdings II, LLC as the 100% parent of HDC Holdings III, LLC, which served — directly or through Channel Control Merchants, LLC — as the sole manager of all 16 operating debtor entities. Hilco's involvement was not limited to equity: Hilco Trading, LLC became both a prepetition lender and, after the filing, the liquidating agent.
The First Day Declaration attributes the freefall to a stacked set of operating and capital-structure pressures rather than a single shock. The most specific trigger was the loss of a foundational upstream supplier: Target reduced and degraded the closeout inventory it sold into the debtors' pipeline, which raised the debtors' acquisition costs while lowering merchandise quality and squeezing the margins of a model built on cheaply sourced salvage goods. At the petition date, Target Corporation's salvage department was the largest unsecured creditor, with claims of approximately $15.6 million; Amazon.com Services ranked second at nearly $5.5 million.
Those pressures compounded with broad cost inflation in labor, freight, and goods, and with a structural financing constraint. Because the debtors lacked a traditional perpetual inventory system, they could not readily obtain or maintain conventional asset-based credit against their merchandise. In the months before the filing the business was burning up to $1 million per week, and the working capital line under the prepetition ABL facility expired on July 19, 2024 with no replacement financing available absent a substantial equity infusion. A $15 million equity infusion from Hilco Trading and a $5 million first-in, last-out loan provided bridge liquidity but were not enough to carry operations past year-end. By the petition date, management had concluded the company could not reach a positive cash-flow operating model and elected a chain-wide wind-down.
The debtors entered chapter 11 with three principal funded-debt tranches sitting above more than $32 million of trade exposure. The senior layer was a prepetition ABL facility of up to $36.5 million governed by an Amended and Restated ABL Loan Agreement, with BMO Bank N.A. (formerly BMO Harris Bank N.A.) as administrative agent and a lender group that included BMO, Hancock Whitney Bank, and Hilco Trading, LLC. Cash collateral findings later fixed the outstanding revolving credit principal at not less than $27,861,681.86 as of the petition date.
Within the ABL facility, Hilco Trading held a $5 million FILO tranche advanced on a first-in, last-out basis. Below the ABL sat a $4 million second lien loan from Treasure Topco, LLC, an affiliated equity vehicle, governed by a Subordination and Intercreditor Agreement dated March 7, 2024 and maturing July 20, 2025. Separately, Hancock Whitney Bank held approximately $10.5 million in real estate loans secured by mortgages on specific Mississippi properties owned by CCM Capital Assets, LLC. That mortgage collateral stood outside the ABL collateral package.
The debtors did not seek a third-party DIP facility. Liquidity for the wind-down instead came from consensual use of cash collateral under a negotiated budget with the prepetition secured parties. The court entered an interim cash collateral order on October 11, 2024, followed by a final order on November 25, 2024.
The final order governed operations through a rolling 13-week cash-flow forecast, with an updated proposed budget required every four weeks and a borrowing base certificate due weekly each Wednesday. Permitted variances applied only absent a default: on a two-week test, operating disbursements could not exceed 110% of budget and receipts had to stay at or above 90%, tightening to a 105% / 95% corridor on a cumulative four-week basis. As adequate protection, the prepetition secured parties received replacement liens on substantially all property subject to a carve-out, superpriority claims for any diminution in the value of their prepetition collateral, current cash payment of interest at the contract rate, and pass-through payment of the agent's reasonable prepetition and postpetition professional fees. Those fees were not subject to court fee-application review; instead, they were invoiced to the debtors, the creditors' committee, and the U.S. Trustee, each with a 10-business-day objection window. The secured parties consented to subordinate their liens to a customary professional-fee carve-out.
The liquidation ran through an agency agreement with Hilco rather than a 363 going-concern sale. On the first day, the debtors moved to assume the Agency Agreement and conduct store-closing sales free and clear of liens, pay closing-store and distribution-center employee bonuses, and reimburse the agent's expenses. The final store-closing sale order, entered November 25, 2024, approved the equity owner's affiliate to run the sales, authorized the free-and-clear conduct of the going-out-of-business process, and approved the employee bonuses and agent reimbursement. The court later entered an amended final sale order on December 12, 2024 permitting the parties to add stores and distribution centers as additional locations and confirming authority to liquidate inventory from the corporate office, distribution centers, and stores. Personally identifiable information was carved out of the assets transferred during the process.
Miscellaneous asset sales. Alongside the store closings, the debtors obtained procedures to dispose of non-store-closing miscellaneous assets — equipment, fixtures, intellectual property, and other tangible and intangible personalty — under a two-tier structure approved by the court on November 12, 2024. De minimis sales of $100,000 or less to non-insiders required notice to the U.S. Trustee, committee counsel, bank counsel, and known lienholders, with a five-business-day objection period. Higher-value transactions above $100,000 and up to $500,000, or any insider sale up to $500,000, required a filed miscellaneous asset sale notice with a 14-business-day objection window. Real-property leases and personally identifiable information were excluded from the procedures.
Lease rejections. As the footprint shrank, the debtors filed omnibus motions to shed closing-store real estate, including a second omnibus lease rejection motion on November 27, 2024 and a third omnibus lease rejection motion on December 16, 2024.
With the store-closing sales materially complete, the debtors moved to convert the cases to chapter 7 on December 10, 2024 under section 1112(a), a debtor-driven conversion the debtors framed as the path contemplated by the cash collateral framework once wind-down dispositions concluded. After an order shortening notice on December 11, the court entered the conversion order on December 23, 2024, ending the chapter 11 cases 74 days after the petition date.
The conversion order addressed administrative wind-up mechanics. Approved chapter 11 professional fees and expenses were to be paid first from each professional's existing retainer and second from an escrow account maintained by Young Conaway Stargatt & Taylor, LLP. The debtors were required to turn over records and property to the chapter 7 trustee, make a debtor representative available for the section 341 meeting on request, and file a schedule of unpaid post-petition, pre-conversion debts within 14 days.
The debtors retained Young Conaway Stargatt & Taylor, LLP as counsel and engaged Mosaic Growth Partners to provide a chief restructuring officer and interim management, with the court approving the CRO retention in November 2024. Epiq Corporate Restructuring, LLC served as claims and noticing agent. The Law360 coverage of the filing identified the advisor lineup as the case opened.
The official committee of unsecured creditors, appointed by the U.S. Trustee on October 23, 2024, retained Orrick, Herrington & Sutcliffe LLP as lead counsel, Cole Schotz P.C. as Delaware co-counsel, and Genesis Credit Partners LLC as financial advisor. The court approved a key employee retention plan on a sealed basis on November 12, 2024 and established bar dates for filing proofs of claim the same day, before the chapter 7 conversion shifted claims administration to the trustee.
The most significant contested matter arose after conversion. On March 11, 2025, Hancock Whitney Bank filed a motion for relief from the automatic stay, asserting indebtedness of $10,807,127.29 as of March 10, 2025 across three promissory notes signed by CCM Capital Assets, LLC, plus accruing fees, insurance, taxes, and maintenance. The notes were secured by mortgages on eight Mississippi properties in Hattiesburg, Petal, and Lucedale.
Hancock argued it lacked adequate protection because the chapter 7 estate had no funds to maintain the properties, which the bank alleged the former liquidator had left in disarray, including at least one vandalized location. The motion quantified the preservation costs Hancock had absorbed: $181,456.34 in force-placed insurance, security at $4,760 per month, maintenance at $3,780 per month, and $421,185.80 in unpaid 2024 property taxes, plus a $100,000 reduction in a prospective purchase offer tied to vandalism damage. Hancock sought authority under sections 362 and 553 to foreclose and pursue other state-law remedies.
Because Hancock's mortgage collateral stood outside the ABL collateral pool, the dispute raised an intercreditor-allocation question once Hilco Trading asserted standing as an ABL participant. The Delaware Bankruptcy Court's opinion on the motion deferred a final ruling pending an evidentiary hearing on whether certain funds qualified as ABL collateral, while affirming that Hilco Trading, LLC had standing to participate as a beneficiary under the relevant intercreditor agreement.
| Date | Event |
|---|
| 1954 | Predecessor of Channel Control Merchants founded |
| 2015 | KKR & Co. acquires the business |
| May 2023 | Hilco Global / Behrens Investment Group acquire the business |
| March 7, 2024 | Subordination and Intercreditor Agreement (second lien) |
| July 19, 2024 | Prepetition ABL working capital line expires |
| October 10, 2024 | Chapter 11 petitions filed (Lead Case 24-12307, D. Del.) |
| October 11, 2024 | Interim cash collateral order entered |
| October 23, 2024 | Creditors' committee appointed |
| November 12, 2024 | Bar dates, KERP, CRO, and miscellaneous asset procedures orders entered |
| November 25, 2024 | Final cash collateral order; final store-closing sale order |
| November 27, 2024 | Second omnibus lease rejection motion |
| December 10, 2024 | Motion to convert to chapter 7 filed |
| December 12, 2024 | Amended final sale order |
| December 16, 2024 | Third omnibus lease rejection motion |
| December 23, 2024 | Conversion order entered — cases converted to chapter 7 |
| March 11, 2025 | Hancock Whitney Bank stay-relief motion |
| May 7, 2025 | Court opinion: Hilco standing affirmed; ABL-collateral hearing required |
Who is the claims agent for HDC Holdings II?
Epiq Corporate Restructuring, LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.
Did HDC Holdings II reorganize or liquidate?
The debtors liquidated. They entered chapter 11 committed to chain-wide going-out-of-business sales, ran those sales through a Hilco agency agreement, and converted the cases to chapter 7 on December 23, 2024 once the wind-down was materially complete.
Why did Dirt Cheap and Channel Control Merchants file for bankruptcy?
The First Day Declaration cites the loss of Target as a primary salvage supplier, rising labor, freight, and goods costs, cash burn of up to $1 million per week, and the July 2024 expiration of the prepetition ABL working capital line with no replacement financing available.
Did the debtors obtain DIP financing?
No. The debtors funded the wind-down through consensual use of cash collateral under a 13-week budget with the prepetition ABL lenders rather than a third-party DIP facility.
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