Legal Review: Applebee’s Franchisee Files for Chapter 11 Bankruptcy

By Oklahoma bankruptcy attorney Roellen G. Hasbrook, a partner with Hasbrook & Hasbrook.

RMH Holdings, Inc., one of the largest franchisees for Applebee’s International, Inc., has filed for Chapter 11 Bankruptcy in Federal Court. The company owns 163 restaurants in 15 states across the country. What does that mean for the employees of the restaurants?

According to a spokesperson for RMH, it means very little, as the company is only seeking to reorganize under bankruptcy protection and intends to continue operating all of its locations.

Most people would read “bankruptcy” and assume that no positive outcome is likely. However, there are several different forms of bankruptcy, each of which has different purposes:

• Chapter 11 Bankruptcy. Chapter 11 Bankruptcy is normally used by companies that are facing large debts and payments due, but that still have viable businesses that are operating and generating revenue. Chapter 11 allows a company to put claims by its creditors on hold while it works out a plan under the protection of the Bankruptcy Court to pay off or restructure its debts and work out payment plans. The goal in Chapter 11 is full payment of creditors and emergence from bankruptcy by the company as a going concern.
• Chapter 13 Bankruptcy. Chapter 13 Bankruptcy is only available to individuals and is designed to allow individuals that are working and earning wages but that have incurred large and unsustainable debts the opportunity to work out a plan to repay those debts without needing to liquidate assets.
• Chapter 7 Bankruptcy. Also known as “Chapter 7 liquidation”, this bankruptcy process is utilized by both companies and individuals. Individuals use this process when they have debts that greatly exceed their assets and which they are unlikely to be able to repay. It allows the individual to seek discharge of some or all of those debts and come out of bankruptcy with a clean slate. Corporations, on the other hand, use Chapter 7 Bankruptcy with no real intention of reemerging from bankruptcy. Corporations use Chapter 7 to liquidate corporate assets and pay creditors in an orderly fashion and in a manner that will ensure discharge of liabilities to the extent possible under court supervision.

“RMH, in seeking the protection of Chapter 11, will likely emerge a stronger company. However, to assume that it will have no impact on individual restaurants or employees would be naïve,” said Roellen G. Hasbrook, an Oklahoma Bankruptcy Attorney with the law firm of Hasbrook & Hasbrook in Oklahoma City.

The company may very well, during the course of the reorganization, identify underperforming stores and seek to shed the liabilities associated with it. Bankruptcy is, after all, a determination that some part of the math related to operation of the business does not work. Just what part that is remains to be seen.