In order to manage a Chapter 11 bankruptcy, many things need to go right if a company hopes to continue operations. In most cases, filing for Chapter 11 bankruptcy gives the company time to negotiate with creditors and owners in an attempt to reach terms that make sense for both parties.
For example, a creditor may be willing to grant longer payment terms or reach an agreement on the payment of past debts. Owners, on the other hand, must decide whether they are willing to take the risk of the company going bankrupt.
Related: Essential retailer closes 400 stores in Chapter 11 bankruptcy
During a Chapter 11 bankruptcy, it is not uncommon for a business, especially a retail or restaurant business with many locations, to try to negotiate lower rents and even forgiveness of unpaid back rent. The landlord might consider those things because losing the tenant carries a risk.
If a landlord believes it would be difficult to find a new tenant or does not want to go through the expense of remodeling the property, modifications are sometimes made. If a landlord does not want to settle, a Chapter 11 bankruptcy company can also take steps to terminate the lease.
Retailers and restaurants often close locations where they don't think they can make money, even with an accommodating landlord. In other locations, they may try to negotiate because they think they can be profitable if expenses are reduced.
Red Lobster tries to reach an agreement
Red Lobster formally filed for bankruptcy on May 19. At the time of filing, it immediately closed 93 locations that were not meeting its expectations. In June, the chain announced that another 100 locations could close if it could not reach an agreement with its landlords.
The company, in a court filing in June, showed that 228 restaurants in total cannot make money under their current lease terms. With the 93 Red Lobsters already closed, that suggests the company could close 135 more restaurants.
Among the locations at risk was the company's iconic Times Square location in New York City. In that case, the landlord wants a significant increase in rent for the property.
The restaurant chain now faces opposition to its bankruptcy plan from some creditors and landlords, threatening the overall process.
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Red Lobster has a problem with the owner
Red Lobster, which filed for bankruptcy in the Middle District of Florida, had hoped to find a buyer for the chain. The deadline for bids is July 22 and a group of creditors and landlords have filed an objection to the struggling seafood chain's plan in court.
“Some of Red Lobster's owners and other creditors have opposed proposed settlements for outstanding debt as the struggling casual dining chain searches for a buyer, according to recent court filings in the company's bankruptcy case.” Restaurant News of the Nation reported.
Red Lobster is seeking to be acquired by Fortress Credit Corp., its largest creditor, unless a better offer becomes available.
“Once that sale is completed, the debt obligations would be transferred to the new owner, hence the flurry of recent objections as creditors seek to be paid their debts,” NRN added.
More bankruptcies:
- Tinker Toy, maker of Tonka toys, files for Chapter 11 bankruptcy
- Another coffee and coffee shop company files for Chapter 11 bankruptcy
- Struggling home goods retailer plans to file for Chapter 11 bankruptcy
Several homeowners oppose the plan, claiming they are owed more than $47,000 and the proposed refund would be $0.
ACI Systems, a payments company, said it is owed more than $105,000, a figure that is growing as it continues to provide services to Red Lobster, and has demanded full payment. Other creditors owed more than $100,000 by Red Lobster have been offered $0 repayment and no guarantee of future performance, which they say is a contractual requirement.
