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Sears has reached a critical moment in its fight for survival.

The bankrupt retailer is trying to find someone to buy the company’s assets, including about 500 of its stores, to keep Sears and Kmart open for business.

But in a bankruptcy court hearing this week, the company’s attorneys said it also is considering bidders for those assets who would shut down the company.

The life-or-death decision will ride with US Bankruptcy Court Judge Robert Drain. And a key part of his decision will ride on how good Sears’ holiday sales turn out to be.

Do-or-die holiday sales

Sears has indicated holiday sales are not going as well as it had hoped.

The day after it filed for bankruptcy in October, Sears filed a budget that forecast sales of $1.7 billion in the seven-week holiday shopping period. It expected positive cash flow most of those weeks during that period, hoping to add nearly $400 million to its meager cash reserves.

But at the end of November it filed a new budget with much grimmer projections. Sales estimates fell by $225 million. It now expects to continue to burn through cash most weeks, not add to its cash.

But it still was counting on a big final week before Christmas, hoping to net $50 million in cash for the entire holiday shopping period.

If it misses those less optimistic targets, its chances of survival will be significantly reduced.

That’s what happened with Toys “R” Us last year: Its hopes of staying in businesses vanished with weak holiday sales and continued losses. By March 2018, it announced the decision to close all of its remaining US stores.

A plan to keep Sears alive

Sears is in the process of rounding up bidders for its assets. It told the court it has interest from multiple parties. Preliminary bids are due by December 28.

Some asset sales are nearly complete. This week, Judge Drain gave initial approval for the $60 million sale of Sears’ home improvement business to Service.com.

The company says it is weighing multiple potential offers for its main operating assets, including the 500 most profitable stores and the Kenmore appliance brand.

The only public bidder for those assets is the hedge fund controlled by Sears Chairman Eddie Lampert, who is the company’s largest creditor and served as CEO until its bankruptcy. He is offering $4.6 billion for those operating assets. Lampert says his plan would let 50,000 Sears employees keep their jobs. The company had 68,000 workers at the time of its bankruptcy filing.

A plan to kill Sears

Some Sears creditors, including landlords and vendors, believe shutting down the company is the best way to retrieve the greatest portion of the money Sears owes them. They question the legitimacy of Lampert’s bid to keep it open.

Lampert is not offering to put up much new cash. Instead, he wants to forgive about $1.8 billion of the debt he holds from Sears.

The creditors committee says that debt should not be recognized by the court, because Lampert loaned Sears the money at a time he was CEO. The creditors’ attorneys question whether the terms of those loans unduly benefited Lampert and his hedge fund rather than Sears. They said they expect to challenge the loans.

Lampert and his hedge fund argue the loans were proper and made to keep Sears alive. He said his bid is in the best interest of both the employees and the other creditors. But if Judge Drain rules in favor of the creditors committee, it could torpedo Lampert’s bid to leave the company without a bidder interested in keeping the stores open.

“The question is if there is anyone but Lampert or the employees who view Sears coming out of bankruptcy — rather than liquidation — as the better outcome,” said Philip Emma, senior analyst with Debtwire and an expert in retail bankruptcies.

Some bidders for the assets said they would then sell them off as part of a shutdown of the company.

At hearings next month, the court could rule whether to give the company a chance to live or start the process of shutting it down.

What happens if Sears lives

If Drain decides to let the company try to stay in business, Lampert or some other buyer would acquire the assets necessary to keep the company operational: the leases or property of stores that are staying open, the Kenmore appliance brand, Sears’ computer systems and warehouses. A new company would be formed with those assets, perhaps within months.

The stores that are closing — and much of the debt — would remain with the existing holding company. It could take years to dispose of those liabilities in bankruptcy.

If the court approves the offer from Lampert or some other bidder interested in keeping the company in business, Sears is not necessarily out of the woods.

The recent history of retail is full of companies, including RadioShack, which managed to emerge from bankruptcy and then go out of business.

What happens if Sears dies

If Judge Drain decides that the best case for the creditors is to shut all of the remaining stores, he will order the beginning of a shutdown process. That would probably take months to complete.

The remaining employees would lose their jobs, probably without the benefit of any severance pay, which was suspended at the time of the bankruptcy filing.

If the company shuts down, some executives of Sears would get bonuses if they remain with the company until the end. Judge Drain approved up to $25.9 million in bonuses last week. But the amount that will be paid out will come to less than that top figure. The full bonuses would be paid out only if the company was able to hit specific financial targets, which isn’t going to happen in a shutdown scenario.