Car Toys, Inc.
Car Toys, Inc. (the “Debtor,” the “Company,” or “Car Toys“), the above captioned debtor-in-possession, moves the Court pursuant to sections
JURISDICTION
1. The United States Bankruptcy Court for the Western District of Washington (this “Court“) has jurisdiction over these chapter 11 cases, the Debtor, property of the Debtor‘s estate and this matter under
2. Venue of this chapter 11 case in this district is proper under
3. The statutory bases for the relief requested in this Motion are sections
BACKGROUND
4. On August 18, 2025 (the “Petition Date“), the Debtor filed with this Court a voluntary petition for relief under chapter 11 of the Bankruptcy Code.
5. The Debtor continues to operate its business as debtor-in-possession pursuant to sections
6. Additional factual background regarding the Debtor, including its business operations, capital structure, and the events leading to the filing of this chapter 11 case is set forth
A. The Pre-Petition Secured Loan and Efforts to Obtain Financing
Beginning in May of 2023, the Debtor has covered its ongoing net operating losses through secured loans from Daniel Brettler evidenced by the Brettler Secured Loan Agreement, the Brettler Security Agreement (the “Brettler Security Agreement“), and the Sixth Amended and Restated Promissory Note, together (the “Brettler Secured Loan“), and from Webster Bank (the “Webster Bank Secured Loan“), on which loan Mr. Brettler (“Senior Secured Lender,” or “DIP Lender,” or “Brettler“) was comaker. Brettler Decl. at ¶ 16. Both loans were each secured by substantially all of the company‘s personal property assets. The Brettler Secured Loan has had several amendments which have resulted in a current indebtedness of $15,613,131.97. See Brettler Decl. at ¶ 17.
A UCC-1 filed with the Washington Department of Licensing was filed on May 2, 2023, under File Number 2023-122-4223-3 in favor of Daniel E. Brettler. Id. at ¶ 18. A UCC-1 filed with the Washington Department of Licensing was filed on November 18, 2024, under File Number 2024-323-3319-4 in favor of Webster Bank. Id. Just prior to the filing of this case, Webster Bank called Mr. Brettler‘s obligation on the Webster Bank Secured Loan and Mr. Brettler paid this loan full, pursuant to a payoff received on August 14, 2025 in the amount of $5,028,714. Id. at ¶ 19. Mr. Brettler thereby acquired Webster Bank‘s secured claim in this case through subrogation and assignment of the Webster Bank Secured Loan. See Brettler Decl. at ¶ 19.
On August 15, 2025, a UCC-3 Termination statement was filed for Webster Bank at File Number 2025-227-6738-0. Id. at ¶ 21. The payoff to Webster left Mr. Brettler as the only secured lender with a blanket lien on the assets of the company. Id. This has left the Senior Secured Lender with a current total loan balance of $20,641,845.60. Id. In November of 2024, a portion of the Webster Bank loan was used to pay down the then existing balance of the Brettler Secured Loan.
Given the Debtor‘s continuing financial challenges, in March of 2025 the Company embarked on a focused marketing effort to identify a buyer or investment partner. Brettler Decl. at ¶ 22. With SCP‘s assistance, the Debtor prepared an investor presentation and other marketing materials to use for the sale process. SCP assisted with the completion of the 2025 projected income statement budget, an add-back schedule to itemize historical non-recurring expenses, and a robust 4-wall analysis to analyze store-level profitability. Id. SCP opened a data room through Datasite to professionalize and streamline information sharing and developed a comprehensive sales analysis, purchasing history, inventory trend analysis and lease schedules, as well as organized historical financial statements, tax returns, marketing and advertising details, organizational charts, personnel information, real property leases, key contracts, intellectual property and other likely items for due diligence requests. Id.
SCP and Brettler contacted various investment bankers, seeking their interest in brokering investment in, or acquisition of, the company, including BMO Capital Markets, Chinook Capital Advisors, Stout, Hilco and Armory Securities. SCP and company counsel also facilitated introductions to Alexander Hutton and First Hill. SCP spoke with several other prospective groups (Lincoln International and Intrepid both passed before taking interviews with CT). Id. at ¶ 23. In short, those avenues did not prove fruitful. Id.
For that reason, given Brettler‘s familiarity with the strategic buyer landscape and his long-standing relationships with leaders of those organizations, the Company decided to move forward without the support of an investment banker, instead relying on SCP and the management team to support a sale process. Id. at ¶ 24. In total, the Company contacted at least 42 potential strategic buyers, 18 of which signed non-disclosure agreements and have accessed the data room with company financial and operational due diligence information. Id. Originally, the Company required offers to be submitted by no later than April 25, 2025, but the Company extended this
All of the Debtor‘s stores, its distribution center, and its Oregon annex have been the subject of the company‘s and SCP‘s diligent marketing efforts. Id. at ¶ 26. These efforts have culminated in the company negotiating the five purchase and sale agreements (the “PSAs“), pursuant to which the company aims to sell a total of 35 stores (the “Purchased Stores“) in 4 states to 5 purchasers (the “Purchasers” and each a “Purchaser“) for a combined purchase price of $13,944,852 the “Combined Purchase Price“). Id. The Combined Purchase Price is subject to adjustments based upon inventory levels at the stores as of the closing dates of these transactions. Id. Each of the PSA‘s is the product of extensive, arm‘s length negotiations between the company and each of these purchasers. Id.
On or about June 25, 2025, the Debtor appointed Philip Kaestle as its chief restructuring officer (“CRO“). See Kaestle Decl. at ¶ 25.
B. Use of Cash Collateral and Adequate Protection
The Debtor requires, and the Senior Secured Lender have consented to, the immediate use of the cash proceeds of the Prepetition Credit Agreement Collateral (the “Cash Collateral“) to continue uninterrupted operations for the benefit of the Debtor‘s creditors and its estate, thereby avoiding immediate and irreparable harm to its business pending a final hearing pursuant to Bankruptcy Rule 4001(b)(2). Kaestle Decl. at ¶ 40. The Debtor is unable to obtain unsecured credit to fund its continued operations. Id. at ¶ 41, Brettler Decl. at ¶ 36. The Debtor seeks to use Cash Collateral in accordance with the budget attached as Exhibit B to the Kaestle Declaration (the
- Adequate Protection Lien. Pursuant to §§
361 and363 of the Bankruptcy Code, the Debtor proposes to provide adequate protection of the interests of the Senior Secured Lender, by granting the Senior Secured Lender (the “Adequate Protection Liens“) in (a) assets of the same kind, type, and nature as the Pre-Petition Collateral in which the Senior Secured Lender and the IRS held liens as of the Petition Date and which are acquired after the Petition Date (the “Post-Petition Secured Loan Collateral“); and (b) all proceeds of the Post-petition Collateral, to secure the amount of any diminution in the Senior Secured Lender‘s interests in the subject Prepetition Collateral as a result of the Debtor‘s Senior Secured Lender‘s interests in the subject Prepetition Collateral as a result of the Debtor‘s use of Cash Collateral. The respective liens of the Senior Secured Creditor in the Post-Petition Collateral have the same priority with respect to the Post-Petition collateral as they had in the Pre-Petition Collateral on the date of filing. - Payment of Interest. No monthly interest payment to the Senior Secured Lender is required. Payment on the Pre-Petition Secured Loan is due upon demand as described in
the Note. There is no proposed Adequate Protection Payment. - Reporting. The Debtor shall provide the Senior Secured Lender with financial and other reporting in compliance with the Proposed Order submitted herewith and the requirements of the Bankruptcy Code and Rules. Timely monthly operating reports during the cash collateral period will satisfy this condition.
- Insurance. The Debtor shall continue to maintain insurance on its assets as the same existed as of the Petition Date.
- Superpriority Administrative Expense Claim. Under
§ 507(b) of the Bankruptcy Code, all obligations subject to the Adequate Protection Lien have priority in payment over all other administrative expenses of the estate other than the Professional Fund and Carve-out (as defined herein).
Brettler Decl. at ¶ 39, Kaestle Decl. at ¶ 41.
C. Proposed Post Petition Financing
In addition to the use of Cash Collateral, the Debtor will need to borrow funds on a post-petition basis in order to meet the projected expenditures as set forth in the Budget. Kaestle Decl. at ¶ 42, Brettler Decl. at ¶ 40. Prior to the Petition Date, the Debtor successfully negotiated post-petition financing evidenced by the DIP loan note (the “DIP Loan“) upon the terms and conditions set forth in the Credit Agreement attached as Exhibit I to the Brettler Declaration (the “Credit Agreement“) to the Brettler DIP (“DIP Lender“) agreed to make and provide the DIP Loan upon the terms and conditions set forth in the Credit Agreement (collectively, “DIP Loan Documents“). See Credit Agreement, Recitals. Brettler Decl. at ¶ 41, Exhibit I.
In accordance with the disclosure requirements of Bankruptcy Rule 4001(c) and Local Rule 4001-3 and Appendix A to the Local Bankruptcy Rules, a summary of the material terms of the DIP Loan and Interim DIP Order, including a description of each of the provisions required to be
| Borrower Bankruptcy Rule 4001(c)(1)(B) | Car Toys, Inc. See Credit Agreement, Recitals |
| Lender Bankruptcy Rule 4001(c)(1)(B) | Daniel Brettler See Credit Agreement, Recitals |
| DIP Agent Bankruptcy Rule 4001(c)(1)(B) | N/A |
| Commitment and Availability Bankruptcy Rule 4001(c)(1)(B) | The DIP Loan shall be a secured term loan credit facility of up to $500,000 for which Lender will receive protection under Sections See Credit Agreement, Section 2.01 |
| Maturity Date Bankruptcy Rule 4001(c)(1)(B) | The Maturity Date is August 31, 2026; Availability of DIP Loan shall terminate immediately and prior to the Maturity Date See Credit Agreement, Definitions |
| Interest Rate, Payments, Fees and Expenses Bankruptcy Rule 4001(c)(1)(B) | Interest Rate: SOFR plus .75, 5.09% as of 8/15/2025 Default Rate: In the event of (i) a default by the Debtor in (a) its payments to Lender or (b) its performance of its obligations under DIP Loan, the Interim DIP Order or the Final DIP Order, or (ii) the occurrence of an Event of Default as described in the DIP Loan, additional interest of 5% will be added to the regular interest rate. Payments: No monthly payments. See DIP Loan, Section 4 (a). |
| Collateral and Lien Priority Bankruptcy Rule 4001(c)(1)(B) | The DIP Loan shall be secured by lien and security interest in and against all of the Debtor‘s personal property, general intangibles, equipment, receivables, inventory, goodwill, intellectual property, licenses and the like (together with the Property, the “DIP Collateral“). The lien securing the DIP Loan shall be subordinate the Pre-Petition Secured Loan. Any cash collateral arising from the Property shall constitute part of the Collateral and “Cash Collateral” as such term is used in the No secondary financing or liens will be permitted on the Collateral. See DIP Loan, Section 6 and Amendment to Brettler Security Agreement Section II. |
| Superpriority Administrative Expense Claims Bankruptcy Rule 4001(c)(1)(B) | The obligations of the Debtor pursuant to the DIP Loan (the “DIP Loan Obligations“) shall be authorized and approved by the Bankruptcy Court, pursuant to section See Interim Cash Collateral/DIP Order, section 8 |
| Use of Proceeds. Payment of Existing Loan Bankruptcy Rule 4001(c)(1)(B) | The proceeds of the DIP Loan will be used finance Debtor‘s operations and pay employee wages and professionals. See Credit Agreement, 3.12 |
| Reporting Requirements Bankruptcy Rule 4001(c)(1)(B) | No less than monthly, budgets and all reports and disclosures to be delivered to Noteholder under the Cash Collateral Order shall be delivered to Lender. See Interim Cash Collateral/DIP Order, Section 5 (a). |
| Events of Default Bankruptcy Rule 4001(c)(1)(B) | The following are “Events of Default” under the DIP Agreement: 1. The failure by the Debtor to perform or comply with any term of the DIP Agreement or any interim or final orders entered by the Bankruptcy Court approving the DIP Loan. 2. The cessation of this DIP Loan to be in full force and effect or the DIP Loan being declared by the Court to be null 3. Any application by the Debtor seeking an order of the Bankruptcy Court granting to any party other than Lender a lien or security interest in or against assets that constitute Post-petition Collateral that is senior or equal to the liens and security interests granted to Lender pursuant hereto. 4. The entry of an order in the Bankruptcy Case granting relief from the automatic stay so as to allow a third party or third parties to proceed against any material (in the Lender‘s reasonable discretion) property, including the Post-Petition Collateral pledged pursuant to the DIP Loan, of the Debtor or to commence or continue any prepetition litigation against the Debtor involving potential liability not covered by insurance, in excess of $50,000 in the aggregate. 5. Entry of a final judgment, decree or order against the Debtor for the payment of money in an amount in excess of $250,000, and such judgment, decree or order shall continue undischarged and unstayed (including pursuant to section 6. Any Interim DIP Order or Final DIP Order entered in this case being amended or modified without the consent of the Lender. |
| 7. Dismissal or conversion of the Bankruptcy Case. See DIP Loan, section 3, and Interim Cash Collateral/DIP Loan Order, section 8(a)(1). | |
| 506(c) Waiver Bankruptcy Rule 4001(c)(1)(B)(x) LBR Appendix A, section A. 5 | Subject to the entry of the Final DIP Order (but not as part of any Interim Order), no costs or expenses of administration of the Bankruptcy Case or any future proceeding that may result therefrom, including liquidation in chapter 7 or other proceedings under the Bankruptcy Code, shall be charged against or recovered from the Post-Petition Collateral or Cash Collateral pursuant to Bankruptcy Code sections See Credit Agreement, section 2.09 |
| Relief from Automatic Stay Bankruptcy Rule 4001(c)(1)(B)(x) LBR Appendix A, Section A. 8 | The automatic stay of the ability of the Lender to enforce its rights under this DIP Loan, the Interim DIP Order and the Final DIP Order, and of the ability of the Lender to enforce its rights against the DIP Collateral, shall be subject to notice and hearing before the Bankruptcy Court on not less than five (5) court days- notice to counsel for the Debtor, the Creditor‘s Committee and the U.S. Trustee) following the occurrence of an Event of Default). See Credit Agreement, section 3.10 (f), and Interim Cash Collateral/DIP Order at 8(a)(1) |
D. Professional Fund
The Budget provides for a fund (“Professional Fund“) to pay the post-petition, allowed fees/costs of all professionals retained in this Chapter 11 case, whether by the Debtor or an unsecured creditors committee (“Committee“), assuming that one will be formed. Kaestle Decl. a ¶ 44. The purpose of the Professional Fund is to assure that all estate professionals are treated
LEGAL DISCUSSION
A. Use of Cash Collateral
Section
(2) The Trustee may not use, sell or lease cash collateral under paragraph (1) of this subsection unless, (A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section.
The Debtor represents that it has insufficient funds to operate unless it uses Cash Collateral, as it holds no unencumbered funds and does not have sources of unencumbered funds, and that the present circumstances require the Debtor to make use of Cash Collateral in order to maintain its ongoing business for the benefit of its estate and creditors. Id. The Debtor has an immediate need
B. Adequate Protection
The purpose of adequate protection under Bankruptcy Code
The Debtor believes that the value of its property does not exceed the balance due on the Pre-Petition Secured Loan and that there is no equity cushion for the Pre-Petition Secured Loan, however, based on the Senior Secured Lender‘s consent to the terms of the proposed Interim Order, adequate protection is provided in the form of replacement liens. In order to adequately protect the interests of the Senior Secured Lender, the Debtor has agreed to grant the Senior Secured Lender Adequate Protection Liens in Postpetition Collateral of the same type in which its pre-petition lien
The Debtor has an immediate need to use Cash Collateral to maintain, preserve and protect its assets and have provided terms for adequate protection of the Senior Secured Lender‘s interests in the Cash Collateral, and on that basis the Senior Secured Lender has consented to the use of its Cash Collateral, including for the payment of necessary parties to move inventory to non-closing stores. For these reasons, the Debtor respectfully request the Court authorize the use of Cash Collateral pursuant to the terms of the proposed Interim Order filed herewith.
C. Postpetition Financing
Section
(c) If the trustee is unable to obtain unsecured credit allowable under section
503 (b) (1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt – (1) with priority over any or all administrative expenses of the kind specified in section503(b) or,507 (b) of this title; (2) secured by a lien on property of the estate that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien.
Section
The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if— (A) the trustee is unable to obtain such credit otherwise and; (B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.
The Debtor is unable to procure the required funds in the form of unsecured credit or unsecured debt with an administrative priority. The DIP Loan is in the best interest of the Debtor‘s estate and creditors because it is the only means at this critical juncture of continuing operations during the Debtor‘s efforts to liquidate its business as a going concern to maximize value for the
The terms of the DIP Loan reflect good faith, arm‘s-length negotiations between the Debtor and the DIP Lender, with input from the Senior Secured Lender and Senior Secured Lender‘s counsel, as well as the Debtor‘s exercise of sound business judgment. Accordingly, the Debtor respectfully requests that the Court authorize the Debtor to obtain post-petition financing pursuant to
D. Good Faith
The proposed terms and conditions of the DIP Loan are fair and reasonable and were negotiated by the parties in good faith and at arm‘s length. Kaestle Decl., Brettler Decl. Accordingly, the DIP Lender should be accorded the benefits of
CONCLUSION
WHEREFORE, the Debtor respectfully requests entry of an order in the form submitted herewith, authorizing the Debtor‘s use of Cash Collateral as set forth herein, approving the DIP Loan, and setting a final hearing at such time as the Court may direct.
DATED this 19th day of August, 2025
CAIRNCROSS & HEMPELMANN, P.S.
/s/ Steven M. Palmer
Steven M. Palmer, WSBA No. 48823
E-mail: spalmer@cairncross.com
Bruce W. Leaverton, WSBA No. 15329
E-mail: bleaverton@cairncross.com
Maria Y. Hodgins, WSBA No. 56924
E-mail: mhodgins@cairncross.com
Ryan R. Cole, WSBA No. 62066
E-mail: rcole@cairncross.com
524 Second Avenue, Suite 500
Seattle, WA 98104-2323
Telephone: (206) 587-0700
Facsimile: (206) 587-2308
Attorneys for Debtor
Wenokur Riordan PLLC
/s/Nathan Riordan
Nathan Riordan, WSBA No. 33926
E-mail: nate@wrlawgroup.com
600 Stewart St Ste 1300
Seattle, WA 98101-1255
Telephone: (206) 903-0401
Facsimile: (206) 219-4141
Attorneys for Daniel Brettler