Chapter 11 bankruptcy can be beneficial to many small business susceptible to low margins and business interruptions. This inherently includes restaurants. This coronavirus, or COVID-19 pandemic has raised many questions for small business owners about how to deal with this issue. One of the ways that Chapter 11 can be useful is in regards to leases.
A precursor to many restaurant Chapter 11 cases is aggressive expansion. That is, restaurant owners may engage in an expansion plan which proves not to be as profitable as expected. To that end, Chapter 11 can allow a restaurant to reject unprofitable leases and locations and focus more on the leases and locations which cash flow. This can be highly valuable to a restaurant which wants to scale back operations in order to become profitable again.
Another reason for a restaurant to file Chapter 11 bankruptcy is to catch up on its commercial lease payments. While a restaurant is obligated to stay current on its lease obligations after the filing of a Chapter 11 case, the bankruptcy process has mechanisms to allow a restaurant to catch up on missed lease payments as it seeks to “assume” its lease through Chapter 11.
If your restaurant is facing leasing issues and other issues with debt, please contact Vik Chaudhry at the VC Law Group via telephone at (858) 519-7333 or contact us at info@thevclawgroup.com to discuss you options and prospects under Chapter 11.