Chapter 11 Bankruptcy Considerations for Restaurants
What happens when a Tampa restaurant files for bankruptcy? It’s important to remember that filing for Chapter 11 bankruptcy doesn’t mean that your business will need to close. Given that Chapter 11 is a type of bankruptcy that involves the restructuring of debts—rather than the liquidation of assets and the “clean start” associated with Chapter 7 bankruptcy—restaurants that file may be able to keep their doors open. However, there are rules that the “debtor-in-possession” must follow if it wants to maintain control of the company.
What general bankruptcy matters should restaurant owners who are thinking about filing for Chapter 11 take into consideration? Let’s take a look at a recent example of a restaurant in the Tampa area filing for bankruptcy, and then we can examine important bankruptcy considerations.
Restaurant Chain with Tampa-Area Locations Files for Bankruptcy
During the COVID-19 pandemic, many Tampa Bay restaurants and bars were shut down by the governor. While these restaurants reopened, for many the sudden loss of revenue had long lasting effects. Restaurant bankrupticies are unfortunately very common. It’s a tough industry, and even more so for small family restaurants. Much public attention is on the large chain restaurants who seek court protection through bankruptcy. According to a recent article in the Tampa Bay Business Journal, the operator of the popular Spanish restaurant chain, 100 Montaditos, has filed for Chapter 11 bankruptcy. While Francisco Cernuda, the CEO of the United States locations of the chain, operates 14 different restaurants across the state, he recently oversaw the opening of a 100 Montaditos in Wesley Chapel at The Shops at Wiregrass Mall.
The Chapter 11 reorganization will only affect U.S. locations of the restaurant chain, but Tampa-area residents likely won’t see any further expansion of the chain beyond the Wesley Chapel restaurant. When the company filed for bankruptcy protection, according to an article from Nation’s Restaurant News Magazine, it listed its assets as “ranging from $500,000 to $1 million, and its liability from $1 million to $10 million.” So you can see, it does not matter how much in assets a business has; if its debts exceed the value of its assets and there is a disruption in revenue, the restaurant is probably going to be in trouble.
What should Tampa restaurants affected by Covid-19 know about filing for Chapter 11 bankruptcy? According to a recent discussion in QSR Magazine, there are a number of things that restaurants should do and shouldn’t do when they’re considering their financial options.
Bankruptcy Guide for Tampa Restaurants
According to the article, restaurants that file for Chapter 11 bankruptcy typically are allowed 120 days to develop a plan for reorganization. And the steps taken—and not taken—during that time period can dramatically impact the restaurant’s likelihood of future success. Here are some important items for Tampa companies to focus on while they’re thinking about Chapter 11 bankruptcy and reorganization:
– First, and most importantly, don’t think about Chapter 11 bankruptcy as a “death sentence.” It’s not going to kill your company if you don’t let it. To be sure, Chapter 11 bankruptcy is a powerful legal tool that can “buy you some time to pay off debts.” When a restaurant in Tampa files for Chapter 11, it will be allotted time to develop a repayment plan for its creditors, which can be “exactly what it needs to keep its head above water.” Under the new Sub Chapter V small business Chapter 11 rules, the business has even more options to stay alive.
– Second, don’t wait to declare bankruptcy until you are insolvent. If you are struggling with debts, get help sooner rather than later. Chapter 11 bankruptcy will only be a tool for restaurants that still have some assets and can use the repayment plan they develop to get out of debt. Filing will give you time to conserve your assets and to continue moving your company toward the future. If you wait too long, however, you might not have enough left—money, cash, etc.—to keep your business going even with a bankruptcy reorganization.
– Third, restaurants should be honest with their creditors about a Chapter 11 filing. According to one advocate, when a restaurant owner contacts creditors, it’s important to “give them all of the facts, all of the truth, and nothing but the facts or truth.” In some cases, for instance, landlords might be willing to negotiate on the rent in order to avoid a restaurant leaving the premises altogether and thereby leaving the landlord with no income at all from the rental property. Most commercial landlords would rather work with a distressed tenant and find a solution, because the landlord loses a lot of leverage during a Chapter 11 case.
– Fourth, any restaurant that is thinking about filing for Chapter 11 bankruptcy should speak with an experienced Tampa bankruptcy lawyer. While it may at first seem like you can handle a bankruptcy on your own, bankruptcy law is extremely complex. An experienced Tampa bankruptcy advocate can assist you with your reorganization plan and thinking through your bankruptcy exit strategy.
Do you have questions about how Chapter 11 bankruptcy could benefit your restaurant or other business? Contact a Tampa bankruptcy attorney at Tampa Law Advocates, P.A. today.