Judge orders Red Lobster to be protected from creditors in Canada

Judge orders Red Lobster to be protected from creditors in Canada
Judge orders Red Lobster to be protected from creditors in Canada

Judge Michael Penny’s order was sought by lawyers for the Canadian arm of the struggling seafood restaurant chain, who told the court their client was working to stabilize its operations.

“All we’re trying to do today is stabilize the business,” said Linc Rogers, a lawyer representing Red Lobster Canada.

The future of the chain, best known for its wide seafood selection, Cheddar Bay biscuits and family-friendly atmosphere, was thrown into question earlier this month when its Florida-based parent company filed for bankruptcy ( Chapter 11) in the United States and closed dozens of restaurants.

Last week, Judge Penny granted Red Lobster Canada a stay that prevents its creditors from taking action against it. His order Tuesday recognizing the U.S. proceedings will give the company more breathing space as the case south of the border moves through the courts and the chain considers its future.

That future could involve selling some or all of the company’s Canadian assets, according to a May 20 affidavit from Red Lobster Management’s chief executive.

“With an impending liquidity crisis and no significant ability to raise new capital, the RL Group board of directors… determined that a value-maximizing sale would be the best possible alternative,” the RL filing said. Jonathan Tibus.

Red Lobster, which opened in Canada in 1983, has 2,000 Canadian employees, most of them part-time and non-unionized. The chain has 27 locations in Ontario, Alberta, Manitoba and Saskatchewan.

The company leases most of its properties in the country and has two in Ontario, including a restaurant in Brantford and a restaurant in Etobicoke on the Queensway, where it owns a building but not the land.

Stuart Brotman, a lawyer representing information manager FTI Consulting, told the court Tuesday that Red Lobster Canada “has had and is expected to continue to have positive cash flow.” However, Mr. Tibus claimed in his affidavit that the entire company faced “significant challenges.”

These challenges include “disruptions in its supply chain, hyperinflation affecting food, labor and delivery costs, substantial increases in the cost of capital and real estate leases, and changes in Casual Dining Trends During and After the COVID-19 Pandemic.

Another company document shows that its annual customer numbers have fallen 30% since 2019 and have only “slightly improved from pandemic levels.”

Shrimp as much as you want

Even its “Ultimate Endless Shrimp” promotion, which was at one point a standing offer, hurt the company’s financial performance.

Mr. Tibus called the offer a “significant cash drain” that, according to filings, cost Red Lobster US$11 million.

The company is currently investigating whether its former chief executive, Paul Kenny, and Thai Union, a seafood conglomerate shareholder in Red Lobster, encouraged marketing of the promotion that was so “excessive” that it triggered ” significant shrimp shortages in restaurants that often lasted several days or weeks.

Conglomerate Thai Union said it has been a supplier to Red Lobster for more than 30 years and intends to continue that relationship.

“We are aware of the baseless allegations contained in the bankruptcy court’s pleadings and look forward to a full presentation of the facts,” Thai Union said in a statement.

In June 2023, Tibus said the company began working on a plan to reduce expenses and waste while restoring business growth. Court documents show the plan was intended to “simplify” the menu and “implement a sensible promotional schedule with fewer limited-time offers.”

However, Tibus said the brand still faces “significant liquidity and operational challenges, which have been exacerbated and accelerated by above-market and underperforming leases and poor operational and marketing decisions.” from the previous management.

Red Lobster did not respond to a request for comment on the filing or the future of its Canadian assets.

The chain was founded in the United States in 1968, but has since amassed 551 restaurants in the United States and several in Mexico, Ecuador, Japan and Thailand.

Its court documents say it has more than 64 million customers a year and is responsible for 20 percent of all lobster tails in North America and 16 percent of all lobsters sold worldwide.

It started as a privately held company but was acquired by food manufacturer General Mills, which eventually spun off its foodservice division into a publicly traded company.

General Mills sold the brand in 2014 to Golden Gate Capital and in 2016, Thai Union Group purchased a stake in the chain, but reportedly divested from Red Lobster.

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