A popular fast food franchisee has filed for Chapter 11 bankruptcy after running up excessive debt due to legal obligations.
River Sub, a Texas-based Subway franchisee which operates almost 50 stores, filed for bankruptcy after paying out nearly $3 million in legal fees after the murder of one of their employees.
Chapter 11 Bankruptcy Allows Companies to Re-organize Debts
If a company becomes overwhelmed by debt, it can apply for chapter 11 bankruptcy, which is often vital for allowing the company to remain in business.
It allows for a court-supervised reorganization of the debtor’s liabilities and assets but can be costly, time-consuming and make it difficult for an organization to get credit in the future.
Substantial Payout May Have Led to Bankruptcy
The primary factor in River Sub’s bankruptcy filing was likely the substantial payout that had to be made to the heirs of murdered restaurant manager Marisela Cadena.
The $2.7 million payout was not mentioned in the bankruptcy filing documents, but the bankruptcy petition came only 8 days after the court ruling.
Failure to Protect Employee from Ex
The ruling was made on the basis of River Sub not adequately protecting Madena from her abusive ex-boyfriend.
In 2020, Cadena was kidnapped and threatened at gunpoint by her abuser.
Cadena Had Requested to Move Store
More may have been done to protect Cadena. She had reportedly requested to move store before the tragic events unfolded.
Her request had been refused and, only a couple weeks after her kidnapping, her ex-boyfriend came to the store and killed her and himself.
River Sub Already in Decline Due to COVID
This may signal the ultimate fall of the franchisee, which has struggled in the past few years, in part due to COVID restrictions.
At its peak in 2012, the franchisee had 69 locations. It blamed COVID for an 80% decline in sales.
Not the Only Restaurant Struggling
Although the circumstances of this franchisee’s struggles are unique, other restaurant chains, in recent years, have also used Chapter 11 bankruptcy filings in response to debt issues.
Tijuana Flats, Rubio’s Coastal Grill, Sticky Fingers, and Ink Coffee have all filed Chapter 11 bankruptcy petitions in the past few months.
Red Lobster Files for Chapter 11 in Florida
Major seafood casual-dining chain Red Lobster also filed for Chapter 11 bankruptcy last month.
The chain has reported struggles with long-term leases and a significant debt burden, but also strategic misteps.
Unlimited Shrimp Deal May Have Been Contributing Factor
Red Lobster offered an Unlimited Endless Shrimp promotion, allowing customers to choose as much as they would like from a range of shrimp dishes.
The promotion saw unexpected demand and reactive price rises followed at stores, seeing hte price rise from $20 to $25.
CFO Admits Pricing Error
Thai Union, which counts Red Lobster among its subsidiaries, released a statement in their Q3 earnings report owning up to their mistake
CFO Ludovic Regis Henri Garnier said: “We knew the price was cheap, but the idea was to bring more traffic in the restaurants. So we wanted to boost our traffic, and it didn’t work.”
