Surviving a Chapter 11 bankruptcy requires the support of vendors, lenders, and creditors. In some cases, however, various parties can have issues with the court-approved deal and not fully derail the process.
That could mean a vendor objecting to getting pennies on the dollar and the bankruptcy court judge deciding to allow a deal anyway. In some cases, the bankruptcy court has to make decisions that solve a problem that nobody is happy with.
Related: Historic beverage brand files Chapter 11 bankruptcy
In the recent case of furniture chain Mitchell Gold + Bob Williams, the company had thousands of pieces of furniture ready for delivery by Ryder. Customers had paid for the delivery, but the delivery company had not been paid.
The judge in the company's bankruptcy case decided that it would solve the problem in a way that was not ideal for people waiting for their furniture. If they wanted to receive their items, they had to pay Ryder again because the delivery company had not been paid.
Since, in most cases, the furniture cost thousands of dollars, that was a better solution than not getting a delivery at all, but it punished the customers who had done nothing wrong.
Bankruptcy court judges sometimes have to make unpopular "split the baby" type decisions. That's what has happened in the latest development in the Red Lobster bankruptcy case.
Red Lobster hits a Chapter 11 bankruptcy bump
At the time of its Chapter 11 bankruptcy filing, Red Lobster closed 99 locations in 28 states. Those were restaurants where the company felt it had no chance of becoming profitable and the shutdowns were clearly permanent as they were followed quickly by the company auctioning off the kitchen equipment in each location.
As part of its bankruptcy process, Red Lobster also had over 100 locations it wanted to keep open but only with concessions from its landlords. In most cases, this was more than just rent forgiveness. The company also wanted its landlords to forgive bank rent.
In most cases, Red Lobster wanted new, lower rent and for its landlords to completely forgive its missed back rent. That's a bold ask and many of its landlords balked at the deal.
Related: Historic furniture chain closing after Chapter 11 bankruptcy
Now, the bankruptcy judge overseeing the restaurant chain's Chapter 11 process, has stepped in.
"A Florida bankruptcy judge said on Friday that she will conditionally approve disclosures for Red Lobster's reorganization plan after the seafood chain agreed to add 'opt-in' procedures that some creditors can use to release third parties from liability under its Chapter 11 plan," Law360 reported.
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Red Lobster sale moves forward
This new decision means that Red Lobster will end up closing more locations.
The company, in a recent court filing, showed that 228 total restaurants cannot make money with their current lease situations. With the 99 Red Lobsters already closed, that suggests that the company could shutter an additional 135 restaurants if landlords object to giving up their past rent claims.
Some landlords have already made it clear that they won't accept new terms, including the landlord at its flagship Times Square location. That landlord is actually seeking an increase in rent.
Each landlord will have the option to decide whether forgiving Red Lobster's past debt and lowering its rent will be a better bet than trying to find a new tenant.
Related: Another national pharmacy chain files Chapter 11 bankruptcy
Red Lobster, as it learns which locations will close, does have a new buyer. The company has accepted a stalking horse bid from Fortress Credit Corp. No other bidder emerged for the company, and the bankruptcy court is expected to approve the deal.
"Fortress is one of Red Lobster’s largest lenders and has financed the restaurant chain’s operations, including a new $100 million loan that allowed Red Lobster to stay afloat during its bankruptcy proceedings. Fortress is an investment fund and owns restaurant chains such as Krystal, Logan’s Roadhouse, and J. Alexander’s through a hospitality arm of the fund," WISHTV.com reported.
