Waffle chain steps in to buy bankrupt franchisee [1]
[Correction: As initially filed, this story stated that FirstBank and the committee of unsecured creditors had given their approval to the proposed transaction. In fact, they have simply stated that they took part in its drafting and view it as offering a fair return to unsecured creditors, without formally endorsing it. NashvillePost.com regrets the error.]
The breakfast-club brouhaha, the skillet slugfest, the hashbrown throwdown – call it what you will, but the contentious proceedings over what is to become of a major operator of Waffle House restaurants may be coming to a close.
What is left could be litigation over who's to blame for the whole situation.
If a plan submitted for court approval yesterday comes to fruition, 105 Waffle House diners operated by Nashville's SouthEast Waffles LLC will come under the control of corporate franchisor Waffle House Inc., based in Norcross, Ga. It will pay some $21.4 million for the assets over the course of ten years, according to court filings, with unsecured creditors due to get back between 25 and 38 percent of their claims.
WHI submitted its blueprint for emerging from Chapter 11 to U.S. Bankruptcy Court in Nashville late Monday afternoon. A copy of the plan is at this link [2], and an accompanying disclosure statement that explains details about it is here [3].
FirstBank, SouthEast Waffles' largest creditor, and a committee of unsecured creditors have indicated some receptiveness to the deal. The disclosure statement says the lender and the committee "have participated actively in the case, including the drafting of the plan." It states that they believe the plan "will result in a fair return to unsecured creditors."
The transaction remains subject to court approval after other creditors have had a chance to object to it.
Yesterday's development came after "WHI and another private equity entity have seriously pursued an acquisition of Debtor’s assets through a plan of reorganization," according to one of the filings. The other possible bidder is not identified, nor is it clear whether a rival bid for the assets could still transpire.
A series of harsh claims and counter-claims followed the initial Chapter 11 filing [4] of SouthEast Waffles last August, and the rancor may not be over yet. CEO Jim Shaub accused former CFO Rebecca Sullivan of causing the firm's downfall by running an illicit check-kiting scheme, while WHI and other creditors said Shaub was complicit in that scheme, ran the company incompetently and was at fault for taking massive amounts of compensation out of the company.
The plan includes a "notice to potential defendants" in asset recovery lawsuits that names Shaub and Sullivan specifically, along with SouthEast Waffles' accounting firm Lattimore Black Morgan & Cain, while also referring to all recipients of payments from the company in the 90-day period before it filed for bankruptcy. Under bankruptcy law, all payments made by a debtor in the 90 days prior to filing are potentially subject to recovery as "voidable preferences" unless they fall into certain exemptions.
The plan anticipates that Harwell Howard Hyne Gabbert & Manner, as debtor's counsel, will ultimately bill some $750,000 in legal fees. It estimates total fees for MGLAW, as counsel to the unsecured creditors' committee, to be approximately $310,000. And it says total compensation for Gary Murphey, the turnaround expert installed last year to run the company as chief restructuring officer, will come to $400,000.
- Legal [5]
- Nashville [6]
- FirstBank [7]
- Harwell Howard Hyne Gabbert & Manner PC [8]
- Lattimore Black Morgan & Cain PC [9]
- MGLAW PLLC [10]
- SouthEast Waffles LLC d/b/a Waffle House [11]
- Corrected article [12]
- Gary M. Murphey [13]
- James L. Shaub II [14]
- Rebecca P. 'Becky' Sullivan [15]
- Bankruptcy [16]
- Litigation [17]
- Restaurants [18]