Mrs. Winner’s Chicken & Biscuits, a fast food chain familiar to Atlanta residents has filed a Chapter 11 Bankruptcy petition in the Northern District of Georgia. In re Famous Recipe Company Operations, LLC d/b/a Mrs. Winner’s Chicken & Biscuits, filed November 10, 2010. Ch. 11 Case No. 10-94027 (click here for petition and schedules).
The Schedules show that the company has $2,397,946 of assets and liabilities of $21,906,873. Significant liabilities include payroll taxes owed to the Internal Revenue Service of $2,108,353 and sales taxes owed the Georgia Department of Revenue of $1,343,460. The assets of the company consist mainly of cash of $200,000 and $2,000,000 for the scheduled value of the leasehold interests in 14 stores (valued at $150,000 each).
The Statement of Financial Affairs shows that income was $64,359,629 in 2007 but decreased to $55,712,807 in 2008 and $40,645,296 in 2009. Income for YTD 2010 was not listed as required. Obviously, the drop in income from 2007 to 2009 was significant.
The Schedules also reflect several lawsuits that have been filed against the company, including several dispossessory actions.
The filing is no surprise after the company recently indicated that it was closing some of its company-owned restaurants that have been operating unprofitably.
The Chapter 11 process allows a company to reject unprofitable leases – a very valuable tool in Chapter 11. Schedule G of the Schedules identifies the leases of the company, and indicates which leases the company intends on rejecting. Ridding the company of several unprofitable leases can allow a company to emerge from Chapter 11 with only its profitable locations, and thus the ability to fund a Chapter 11 plan of reorganization. Leases that are properly rejected during the case are treated as breaches of the lease prior to the petition date, and therefore paid as pre-petition general unsecured claims. Leases that are assumed in the Chapter 11 case are generally post-petition liabilities that must be paid in full and as due going forward. The Code often provides a sword to the company as it may force a lessee to negotiate a more favorable lease rather than face rejection.