Several economic issues, such as rising inflation and high interest rates, have led to restaurant franchisee financial distress, forcing several eatery operators to file for bankruptcy in 2024.
Most operators will file Chapter 11 to restructure and reorganize, while some of the franchisees with severe financial distress will opt for Chapter 7 liquidation.
Related: Popular fast-food burger chain files for Chapter 11 bankruptcy
In some cases, a debtor might have overseas affiliations and will file for Chapter 15 for recognition of their case as a foreign proceeding to protect its U.S. assets.
São Paulo, Brazil, restaurant chain operator SouthRock Capital, which operates eight TGI Fridays restaurant franchises in Brazil, on June 12 filed for Chapter 15 to protect its rights to the TGI Fridays brand and any other assets it has in the U.S.
The debtor had already been granted bankruptcy protection in Brazil in December 2023 as it sought to restructure its business and continue operating.
As in the case of Chapter 7 or Chapter 11, filing Chapter 15 places an automatic stay on any legal actions against the debtor while the case proceeds.
SouthRock has operated hundreds of restaurants in Brazil, including about 1,600 Subway, 187 Starbucks and several others. A loan default in September 2023 led to termination of its Starbucks (SBUX) agreement, and Subway also terminated its agreement with SouthRock in November 2023.
Popeyes franchisee RRG Inc., which operated 17 locations in Georgia, in February filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Georgia blaming three underperforming locations for causing the company’s distress.
Related: Iconic auto parts retailer files for Chapter 11 bankruptcy
The debtor said it would continue to operate while in bankruptcy and plans to negotiate its debt obligations in bankruptcy to avoid lease termination.
Other fast-food franchisees that filed Chapter 11 include EYM, which operates 140 Pizza Hut locations in Texas, Wisconsin and Ohio. The Pizza Hut operator filed its petition in July, since it didn’t have enough capital to pay its franchise royalties.
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Arby’s franchisee Miracle Restaurant Group, which operates 25 units in Illinois, Indiana, Texas, Mississippi, and Louisiana, in June filed for Chapter 11 protection after the effects of the Covid-19 pandemic and inflationary pressures in commodity and labor expenses caused financial distress.
Dickey’s franchisee files Chapter 11 bankruptcy
Dickey’s Barbecue Restaurants franchisee Smokin’ Dutchman Holdings on Sept. 9 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Western District of Michigan in Grand Rapids to restructure its business, blaming its financial difficulties on Dickey’s for allegedly imposing extreme and unreasonable demands on the debtor’s resources.
The franchisee, which owns four restaurants in Holland, Jenison, Kalamazoo and Rockford, Mich, seeks the court’s authority to reject its Dickey’s franchise agreements to alleviate Smokin’ Dutchman from the burden imposed upon it by the franchisor, according to a declaration filed by the debtor’s CEO Krage Fox.
The debtor will seek court approval to use its cash collateral, accounts receivable, and inventory to fund its ongoing operations to preserve the going concern value of the debtor’s assets. It said the company will not be able to continue to operate and will lose going concern value if it is not able to use its cash collateral.
The debtor opened his Kalamazoo location in 2018, purchased the Rockford and Jenison restaurants in 2020 and opened the Holland store in 2022.
The Kalamazoo-based debtor has about $2.1 million in debt, its declaration said.
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