Franchise Owners Face Parent Company Bankruptcy

Franchisees left companyless

Old Country Buffet filed for Chapter 11 in January 2008, but emerged with reduced debt in April 2009.

People say recession sparks innovation, creativity, responsibility, and all other sorts of optimistic-sounding things. It also causes failure, collapse, bankruptcy and all other sorts of apocalyptic-sounding things.

It also causes complications, such as leaving franchise owners to figure out how to deal when their parent company goes bankrupt. Sometimes the parent company manages to get back on its feet, and sometimes it shuts down. Either way, the franchise owner is still responsible for his or her store, and left with the decision of what to do when selling a tarnished brand.

CNN Money published a list of franchises that went bankrupt since the recession became official. Some came back and some didn’t.

Mrs. Fields Famous

The Mrs. Fields Famous brand, based in Salt Lake City, Utah, is the parent to 1,200 Mrs Fields Cookies and TCBY stores. Last August, the company filed for Chapter 11.

Lucky for the franchises,  which continued to operate throughout the bankruptcy proceedings, only a couple of months later,the company was on the road to recovery. I don’t know if they  used private money lenders or what, but it  managed to restructure its $196 million in debt down to $50 million.

Cork and Olive

Small Florida parent company Cork and Olive wasn’t so lucky. Cork and Olive, which was made of eight company stores and nine franchises, filed for bankruptcy in June 2008.

The company stores shut down, but the franchises are still soldiering on. CNN Money reports that “the franchisees meet regularly to discuss how to keep their brand alive without the parent company.”

Bennigan’s

Texas-based family dining restaurant Bennigan’s filed for Chapter 7 bankruptcy — that’s right, the bad kind — in July 2008. All of the corporate locations were shut down. CNN Money says:

Its 138 franchisees were left in PR hell, struggling to convince patrons that they were still open for business.

However, private equity firm Atalaya Capital company acquired the brand in October and reopened the corporate stores quickly, many of which are now operated as franchises.

Bally Total Fitness

This gym just can’t seem to catch a break. The nationwide franchise, based in Chicago, has filed for bankruptcy more than once. CNN Money reports:

It was a déjà vu for the health club chain in December 2008 when it filed for Chapter 11, a mere 14 months after emerging from its first Chapter 11 filing in July 2007. Just weeks ago, Bally signed an agreement to emerge from bankruptcy by restructuring the $1.5 billion in debt it had accrued and by granting 94% of the company’s equity to lenders such as J.P. Morgan.

Fatburger

This one gets a little complicated. Two subsidiaries of Fatburger Corp, Fatburger Restaurants in California and Fatburger Restaurants in Nevada, filed for bankruptcy in April. However, parent company Fatburger Corp. did not file for bankruptcy. Confusing matters more, that parent company, Fatburger Corp., is based in California.

Furthermore, Fatburger Restaurants in California and Fatburger Restaurants in Nevada accounted for 72 percent of Fatburger Corp’s total revenue. So what now? Good question. CNN says “The company’s 90 franchise owners are waiting to see what happens next.”