Will your local favorite restaurant file bankruptcy?

Posted By David Pritchard || 05/13/2021

It’s likely we could see more bankruptcy filings by restaurant chains and family-owned restaurants as they are forced to revisit their options, including Bankruptcy, when landlords and lenders start asking for the funds they are owed.

“What’s going to precipitate more bankruptcies is when banks have to start saying, ‘wait a second, it’s been a year, year and a half now, we need to get some money in,” said Dave Bagley, managing director of the investment bank Carl Marks Advisors. “That’s coming as summer approaches.”

What’s more, Bagley said, the lenders did not push the issue to collect payments. The same was true with their landlords — who have debt of their own. This created a “we’re-all-in-this-together” scenario in which landlords did not force restaurants to pay all of their rent and lenders did not force them to pay off debt.

This approach gave restaurants more time to develop strategies for surviving the pandemic. It has likely kept many restaurants from closing— only 2 % of the restaurants in the Top 500 closed last year, a remarkably small number. And only about 5 % of casual dining restaurants closed, which is also small, given that the typical casual dining restaurant lost about a quarter of its business last year.
“There was no one pushing the restaurant to do anything,” Bagley said. This did not work for everybody, of course. Some chains were pushed into a bankruptcy filing quickly, and some landlords forced the rent issue. After all, it was not as if there were not any bankruptcies or closures.

Now, restaurant sales are on the upswing — many chains have reported record sales in recent weeks and just about every sector is seeing post-pandemic highs, at least, as consumers spend their stimulus cash on restaurant food. Thus, landlords and lenders are expected to begin pushing for their money.

We may not see a lot of new bankruptcy filings. But the industry is not entirely out of the woods when it comes to seeking out debt protection. If your business is dealing with issues concerning collecting or paying obligations that have be on hold or reduced, but are now due and payable, contact The Pritchard Law Firm at 817-285-8017 to get advice on dealing with these issues.

David Pritchard
The Pritchard Law Firm
david@dlplegal.com

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