The owner of Romano’s Macaroni Grill has filed for Chapter 11 bankruptcy. According to an Associated Press news report, the national restaurant chain’s owner, Mac Acquisition, filed for protection with the U.S. Bankruptcy Court for the District of Delaware, citing some $23 million in secured debt with negative earnings of $12 million and on revenues of $230 million. Macaroni Grill has 93 company-owned locations and 23 franchise locations all of which are expected to remain open.
The company said in a statement that they filed for protection under Chapter 11 to “shed legacy liabilities that were negatively impacting and hindering the company’s path forward.” Macaroni Grill will operate in a “business as usual” mode during the process, the statement from the company said.
Understanding Chapter 11 Bankruptcy
In a Chapter 11 case, the debtor takes the initiative and seeks bankruptcy relief. However, in some cases, creditors may also band together and file an involuntary Chapter 11 petition against a debtor who hasn’t paid up. Most debtors file the Chapter 11 bankruptcy case where they are headquartered. Chapter 11 cases are typically filed by corporations, partnerships and limited liability companies. Individuals can file under Chapter 11 if they have too much debt or income to qualify under Chapter 7 or Chapter 13.
In a Chapter 11 case, a trustee is not appointed. Instead, the debtor continues to operate the business as usual. However, if the court finds that the debtor has acted fraudulently, dishonestly or incompetently, it could appoint a trustee to take over operations. In a Chapter 11 case, the bankruptcy court has all the power. The bankruptcy court must approve everything from sale of assets, entering into lease agreements, shutting down or expanding business operations or getting into other types of agreements.
Creditors, shareholders and other parties may support or oppose the actions that require the court’s approval. In making its decisions, the bankruptcy court will take input from creditors and other stakeholders. Unsecured creditors usually participate in the Chapter 11 case through a committee that is appointed to represent their interests. Unsecured creditors may choose to retain attorneys and others to help them at the debtor’s expense.
Pros and Cons of Chapter 11
The main benefit to the debtor is that this type of bankruptcy gives them a chance to reorganize debts. After filing a Chapter 11, the bankruptcy court issues an automatic stay that keeps creditors at bay, giving the debtor to come up with a repayment and reorganization plan. The business’s goal is to stay profitable while paying back debts. Creditors tend to be patient with a Chapter 11 plan because they stand to benefit more than they would in a Chapter 11 case. Each secured creditor is placed in their own class. Once the bankruptcy plan is confirmed, the debtor is required to make all the payments to creditors as outlined in the reorganization plan.
The main disadvantage of Chapter 11 is that it can be a long and costly process, which can pose more challenges for a business that is struggling to stay afloat. The filing and legal fees alone can be significant. Also, the reorganization plan they develop must be feasible and approved by the bankruptcy court.
If you are in danger of losing your business due to overwhelming debt, call an experienced Phoenix bankruptcy lawyer to find out if filing for Chapter 11 bankruptcy might be the best possible solution for you.