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Restaurant Industry Chapter 11 Bankruptcies
The past year has brought a wave of restaurant businesses filing for reorganization in Chapter 11. With inherently low profit margins, increased competition, limited pricing flexibility and a propensity for expansion without the support of underlying business fundamentals, the industry is particularly susceptible to business failure. The recent filings range from luxurious high-end restaurants to casual budget eateries, and often involve hundreds of locations, thousands of employees, and hundreds of millions of dollars of debt. This article discusses the causes of the recent trend, and some of the issues that arise when restaurants avail themselves of the Chapter 11 process.
A Wave of Restaurant Chapter 11s
In March, NYLC, LLC, the owner of Le Cirque, a legendary Manhattan restaurant open since 1974, filed for Chapter 11, blaming temporary cash flow issues. Its first-day filings reflect a projected 15% income shortfall compared with anticipated expenses of more than $460,000 during its first 30 days of operation in Chapter 11.
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