Red Onion chain to be sold or liquidated by mid-June.Creditors force parent firm into Chapter 7 bankruptcy The under-performing Red Onion restaurant chain has been forced into Chapter 7 bankruptcy by creditors. A trustee has been appointed to oversee company operations. He plans to either sell the chain by mid-June or liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the it. The Red Onion's parent company, known both as International Onion Inc. and Newman Holdings Inc., entered into Chapter 11 bankruptcy protection last November after struggling with cash flow problems caused both by the recession and by attempts to promote an outdated restaurant concept. "The company's financial misfortunes began in 1990 during the Desert Storm buildup build·up also build-up n. 1. The act or process of amassing or increasing: a military buildup; a buildup of tension during the strike. 2. as people were unwilling or unable to spend as much on food and entertainment as they had in previous years," said company owner, Chairman and President Ron Newman People named Ron Newman include:
"In an effort to stimulate interest in the business, we decided to change the image of the Red Onion by developing a new design, putting in various controls and decentralizing de·cen·tral·ize v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es v.tr. 1. To distribute the administrative functions or powers of (a central authority) among several local authorities. the company," he stated. "However, financial restraints prevented completion of the changes aimed at rekindling interest in the business." The company's unsecured creditors Unsecured Creditor An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because they have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor. were left hanging. Los Angeles-based Rykoff Co. is owed $595,000, Los Angeles-based General Star Management Co. is owed $554,000 and Long Beach-based M.D.F.C. Equipment Leasing Equipment Leasing is a financing option to lease equipment for a certain amount of time. Leasing Benefits
"Unfortunately we've had financial difficulties which precluded us from satisfying our creditors," Newman said in the statement. In an effort to recover, the restaurant and bar chain closed three of its 13 restaurants and introduced a new menu last February. The changes weren't potent enough to satisfy the creditors though. They felt Newman and his management team "weren't capable of handling the financial crisis the company was in," said Jim Stang, attorney for the creditors committee. "The stores were in chaos," he said. Managers didn't know operational procedures The detailed methods by which headquarters and units carry out their operational tasks. and there were no controls at the bars for ringing up sales, among other things, he claimed. The committee told Newman they wanted him to resign as president yet remain as chairman, and picked Ted Zachariadis, who has a strong background in the food and beverage F&B is a common abbreviation in the United States and Commonwealth countries, including Hong Kong. F&B is typically the widely accepted abbreviation for "Food and Beverage," which is the sector/industry that specializes in the conceptualization, the making of, and delivery of foods. industry, as their choice to run the company, Stang said. But Newman refused to comply. He finally consented to a compromise, agreeing to hire Zachariadis as a consultant for 30 days and allowing him to examine the company. Zachariadis and the creditors committee's accountant soon found a pile of unpaid bills. The company hadn't paid two months' worth of sales tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. or its insurance premiums. It had also missed a payroll and neglected to pay many of its landlords, particularly one the company had been specifically ordered by the court to pay, Stang said. There were at least $500,000 worth of bills the company had incurred under Chapter 11 that it hadn't paid, Stang said. The creditors committee asked Newman to resign once again, and when he didn't they forced the company into Chapter 7 on March 18. U.S. Bankruptcy Court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties. Judge Lisa Fenning appointed Jeffrey Coyne as a trustee. Coyne is continuing to operate the chain for 90 days after the filing and is searching for a buyer, Stang said. The chain would be more attractive to a buyer in its operating state, Stang explained as the reason for keeping it open. If no buyer is found, the company will be liquidated DAMAGES, LIQUIDATED, contracts. When the parties to a contract stipulate for the payment of a certain sum, as a satisfaction fixed and agreed upon by them, for the not doing of certain things particularly mentioned in the agreement, the sum so fixed upon is called liquidated damages. (q.v. . Coyne could not be reached for comment. Under the Chapter 7 filing, the creditors will get nothing, Stang said. The trustee's expenses will be paid first, and then the Chapter 11 expenses will be paid. But the assets aren't worth much, Stang said. The leases are worth little because the rents attached to them are at or higher than market rate. Also, back rent is owed on them, Stang said. Furthermore, the equipment inside the restaurants would only be worth about 10 cents on the dollar if sold to a liquidator Liquidator Person appointed by an unsecured creditor in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts. . With so many restaurants going out of business, restaurant equipment isn't worth much, Stang explained. After the trustee and bills are paid off, the creditors are likely to get nothing, Stang said. But they wanted to push the company into Chapter 7 anyway, Stang said, because "if this thing is really the walking nightmare that we thought it was, then the issue wasn't whether the restaurants would be closed or open. It was when it was going to be closed." The committee felt it would be better to have a legitimate trustee taking over the company than watch it continue going downhill, Stang said. |
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