Car Toys - Chapter 11 Liquidation Plan Terms

Car Toys' liquidation plan distributes $12.2 million in seller note proceeds from the court-approved sale of 33 stores, allocating 80% to secured lender Daniel Brettler and 20% to general unsecured creditors after satisfaction of administrative and DIP claims.

Liquidation Plan Terms

Overview

On August 18, 2025, Car Toys, Inc. (the “Debtor”) filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Western District of Washington.
The Debtor has filed a Plan of Reorganization (the “Plan”) designed to provide the best feasible recoveries to creditors through the distribution of proceeds from Seller Notes and the liquidation of remaining assets.

Sale Transactions

Prior to the petition date, the Debtor negotiated five separate purchase and sale agreements (“PSAs”) to sell 33 stores and 3 annexes across Oregon, Washington, Texas, and Colorado.
- The purchasers include Sound Distributions, Aspen Sound, Drive-In Auto Sound, Ride Ready, and CTX.
Following Court approval, the Debtor closed on the PSAs for a final combined purchase price of $12,151,936, adjusted from an initial price of approximately $13.95 million.
The Debtor continues to collect payments under the PSAs and holds promissory notes (“Seller Notes”) made by CTX Operating Company, Inc., Ride Ready, Inc., and Sound Distributions, Inc.

DIP Financing

The Debtor secured post-petition financing from Daniel Brettler (the “DIP Lender”) to fund employee wages, utilities, professional fees, and other Chapter 11 expenses.
- Initial Facility: A $500,000 facility approved on or about September 23, 2025.
- Amended Facility: An increase to $850,000 approved on or about December 17, 2025.
- Post-Confirmation Funding: The Debtor is entitled to procure an additional $150,000 from the DIP Lender following confirmation.

Plan Administration

The Plan contemplates the appointment of a Plan Administrator vested with powers analogous to a bankruptcy trustee under sections 704 and 1106 of the Bankruptcy Code.
Upon the Effective Date, all employees and directors shall resign, and title to all cash in the estate will vest in the Plan Administrator.
The Plan Administrator’s responsibilities include:
- Collecting and distributing all Seller Note Proceeds.
- Pursuing litigation against Directors and Officers, strictly limited to recoveries available from the Debtor’s insurance policies.
- Objecting to and administering Allowed Claims.
- Restructuring Seller Note loans in the event of a buyer default.

Classification and Treatment of Claims

Administrative Expenses & DIP Loan:
- Administrative Expenses (excluding the DIP Loan) shall be paid from 50% of the Seller Note Proceeds.
- The remaining 50% of the Seller Note Proceeds shall be allocated to repaying the DIP Loan.
- If either category is paid in full, remaining proceeds will be applied to the other until satisfied.
Class 1 (Brettler Secured Claims):
- In exchange for limiting his recovery, Mr. Brettler will receive:
  - 80% of the Seller Note Proceeds (after payment of Administrative Expenses).
  - 100% of proceeds from any excess funds defined in the PSAs.
- Mr. Brettler is not entitled to a general unsecured claim.
Class 2 (General Unsecured Claims):
- Holders of Class 2 Claims shall receive:
  - 20% of the Seller Note Proceeds (after payment in full of Administrative Expenses and the DIP Loan).
  - 100% of proceeds from any recovery related to potential D&O insurance litigation.
Class 3 (Equity):
- All ownership interests will be cancelled on the Effective Date, and holders will receive no distribution.

Executory Contracts and Releases

Executory Contracts: On the Effective Date, all executory contracts and unexpired leases are deemed rejected, with the exception of:
- Purchase and sale agreements related to the asset sales;
- The Debtor’s existing D&O insurance coverage agreement; and
- The Threshold Communications Agreement, which is assumed upon a $28,000 cure payment.

Releases: The Plan provides for releases of all claims against Daniel Brettler, bargained for in exchange for his agreement to limit his secured claim and share Seller Note Proceeds.
- Exception: The release excludes potential litigation against Directors and Officers up to the limits of the D&O policy (excluding personal liability).
Released Parties: Include the Debtor, the Reorganized Debtor, the Committee, current and former Committee Members, and their respective related parties.
Exculpation: The Debtor, the Creditors’ Committee, and their respective professionals are exculpated for acts taken during the Chapter 11 Case.