Adam Law Group Blog

Why Businesses File Chapter 11

At the end of August, a potentially major legal showdown is scheduled to be heard in court as the company behind over 140 Applebee’s franchises fights against Applebee’s parent company. Approximately nine months ago, RMH Holdings, the second largest franchise holder of Applebee’s, stopped paying their parent company royalties and advertising fees. After months of contention, Applebee’s parent company, Dine Brands, attempted to regain control of the large number of RMH-owned locations by terminating the franchise agreement. Unfortunately, just hours before the official termination was delivered, RMH Holdings filed Chapter 11 bankruptcy, sparking a discussion regarding the various reasons large corporations may unexpectedly file bankruptcy.

Stop Creditor Actions

Just like average citizens, large business owners have creditors and bills. The average business must pay wages, storage rent, taxes, equipment fees, and much more on a monthly basis. If their business begins to suffer in any manner, a domino effect may occur that leads to a business being unable to pay its bills. Filing Chapter 11 gives a business a chance to stop creditor actions such as seizing equipment, foreclosing on property, or placing liens on accounts.

Restructure With Less Pressure

Depending upon the size of the company and the reason for the financial difficulties a business may only need time to restructure internally so that they can begin repaying their debts. Filing for Chapter 11 gives a business a chance to restructure with less pressure in the form of creditors filing lawsuits or threatening action. After filing, a business may replace key employees, slash expenses, and make other changes to accumulate enough cash to make payment arrangements that will satisfy their creditors or the bankruptcy court.

Protect Various Assets

Acquiring Chapter 11 bankruptcy also gives business owners a unique opportunity to protect valuable assets that might otherwise be seized. In the case of Dine Brands versus RMH Holdings, the right to operate under the Applebee’s brand is a valuable asset that RMH Holdings did not want to lose. Filing bankruptcy allowed them to continue operating the majority of their locations and prevented the parent company from taking control of the locations along with their revenue.

Is Your Business in Trouble?

If you are a business owner dealing with financial difficulties, then it may be time to consider filing Chapter 11. Though no one ever looks forward to filing bankruptcy, acting quickly could protect your brand and future earning potential. The bankruptcy attorneys at Adam Law Group are prepared to answer any questions that you have and provide you with unique insight acquired through our years of experience. Reach out to our Jacksonville, Florida location today to schedule an initial consultation so that we can begin providing you with the help you and your business deserve.