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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Back Yard Burgers Files for Bankruptcy in Delaware

Posted in Bankruptcy Case Summaries

On October 17, 2012, Back Yard Burgers, Inc. (the "Debtor" or "Back Yard Burgers"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Nashville, Tennessee, Back Yard Burgers is a fast-food restaurant with 89 stores situated primarily in the southeastern United States.  See Debtor’s Declaration in Support of Chapter 11 Petitions (hereinafter, the "Decl.") at *2.  Back Yard Burgers owns 25 of its restaurants.  The remaining 64 locations are owned by franchisees who have entered in to franchise agreements with the Debtor.  Id.

Back Yard Burgers opened its first restaurant in Cleveland, Mississippi in 1987.  The company competes in the general fast-food market, however, it focuses on that segment of the market that offers black-angus hamburgers and chicken grilled on-site.  Decl.at *4.  From January to August of 2012, the company generated revenue of $18.4 million and sustained a loss of $2.4 million.  Through franchising agreements, Back Yard Burgers generated $1.3 million in revenue for the first 8 months of 2012.  Id.

Back Yard Burgers attributes several factors to its need for bankruptcy protection – declining sales, increased food costs and high lease rates.  Decl. at *7.  According to the Debtor, in the years prior to bankruptcy its food sales were negatively affected by the downturn in the U.S. economy.  The company initially tried to address these issues without filing for bankruptcy protection, however, the Debtor contends that its prior attempts to reduce costs "were unsuccessful and actually exacerbated the problems."  Decl. at *2. 

The Debtor enters bankruptcy with several stores already closed.  While in bankruptcy, Back Yard Burgers intends to reject certain leases and contracts which the company believes are not profitable.  Decl. at *6-7.  The Debtor blames part of its problems on franchisees who "failed to effectively operate their franchised locations"  Decl. at *8. Back Yard Burgers purchased some of the underperforming franchised stores in an effort to improve operations.  In doing so, however, the company assumed lease obligations that exceeded monthly sales for certain stores.  Id.

Back Yard Burgers has operated at a loss for an extended period of time.  To meet debt obligations, the company has relied on funding from some of its key investors.  In the weeks prior to bankruptcy, the Debtor, its lender and certain investors entered in to a Plan Support Agreement.  Under the Support Agreement, the parties agreed upon a restructuring of Back Yard Burgers that is intended to result in the confirmation of a consensual plan of reorganization. Decl. at *3. 

The Back Yard Burgers bankruptcy is before the Honorable Peter J. Walsh of the United States Bankruptcy Court for the District of Delaware.  Judge Walsh previously served as Chief Judge of the Delaware Bankruptcy Court.  Back Yard Burgers is represented by Greenberg Traurig, LLP.  A copy of Back Yard’s Petition for Bankruptcy is available here for review.  A copy of the company’s Declaration in Support of Bankruptcy Petitions is available here

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Jason Cornell is a partner with the law firm Fox Rothschild LLP.  Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?