On October 14, Wisconsin Apple LLC filed for Chapter 11 bankruptcy. The company owns 29 Applebee’s Grill and Bar locations across Wisconsin, and it claims all of them will remain open despite the company’s financial troubles. How is this possible?
Chapter 11 Provides Flexibility
It is possible because Chapter 11 bankruptcies help business owners work on reorganizing and retooling rather than forcing liquidation and shutdown. Under Chapter 11, a business may renegotiate debts, terminate certain contracts, sell off assets, and downsize or shut down portions of its business while continuing to operate. This flexibility is designed to help struggling businesses turn things around and get back on track.
“We have had to make the difficult decision to file bankruptcy, which directly impacts a small number of restaurants in a limited area, following some aggressive actions by our lender,” Wisconsin Apple owner Seenu Kasturi said in a statement. “We will continue to adhere to the high standards our guests expect from us when they visit us and expect that there will be minimal impact on our team members.”
An Applebee’s spokesperson stated the company expects to continue welcoming guests throughout the process.
An Incentive to Work Things Out
Wisconsin Apple’s creditors have an incentive to work with the company to find a profitable path forward because the alternative is seeing the debtor convert the bankruptcy from Chapter 11 to Chapter 7 and wind down operations. In that scenario, creditors are less likely to get repaid any of the debts they are owed, or may only get pennies on the dollar.
Such conversions are not unusual. Many businesses that file under Chapter 11 and continue to struggle, even after taking advantage of the benefits that the bankruptcy law provides, end up converting to Chapter 7 and winding the business down completely. A recent example is Toys R Us, which could not find a path to profitability or a buyer, and no longer exists.
Chapter 11 Is Not for Everyone
While there are many benefits to filing for bankruptcy under Chapter 11, it does not work well for every business that wants to attempt to reorganize. It is a complex and expensive process.
Recognizing this, Congress recently updated Chapter 11 by adding on a new section called Subchapter V. Subchapter V is designed to help small businesses go through a reorganization bankruptcy quickly and efficiently. To qualify, a debtor must be an individual, partnership, or corporation that:
- Is engaged in commercial or business activities;
- Has no more than $2,725,625 of total debt; at least 50% of which must be from the business or commercial activities [note that this requirement has been altered due to the pandemic to allow more businesses to qualify, but it will supposedly snap back sometime in the future]; and
- The debtor’s principal activity cannot be a single-asset real estate operation.
We are already seeing a number of small businesses in the Milwaukee area benefit from this new process.
Milwaukee Bankruptcy Lawyers You Can Trust
Hanson & Payne, LLC is a trusted advisor to businesses in the Milwaukee area. We have a reputation for being business-minded in an industry that is often criticized for not understanding that legal action is a means to an end, not an end in and of itself. If you are looking for legal counsel in this challenging time, we would be honored to take your call. Contact us today to schedule an initial consultation.