In re Krystal Co.
United States Bankruptcy Court for the Northern District of Georgia
2020 Bankr. LEXIS 3202 (2020)
- Written by Steven Pacht, JD
Facts
Restaurant operator The Krystal Company (Krystal) (debtor) filed for Chapter 11 bankruptcy. Krystal’s largest creditors were a lending group that included Wells Fargo Bank (collectively, Wells Fargo) (creditors), to which Krystal owed approximately $51 million. This debt was secured by all Krystal’s assets. Krystal, Wells Fargo, and the Committee of Unsecured Creditors (committee) (creditors) decided that the best way to pay Krystal’s creditors was to sell Krystal’s assets as a going concern. One bidder offered $1 million plus the assumption of certain Krystal liabilities. That bid was topped by DB KRST Investors, LLC (KRST), a subagent for Wells Fargo that acted for Wells Fargo’s benefit. KRST offered to buy Krystal’s assets as a going concern in exchange for, among other things, a reduction of the Wells Fargo debt to $27 million (leaving $24 million unpaid) and KRST’s assumption of certain Krystal postpetition debts and lease and other contractual obligations. The court approved KRST’s purchase on these terms. The court determined that the sale was in the best interest of Krystal’s creditors because it achieved the maximum possible recovery. The court further determined that the alternative (i.e., liquidation), in addition to being likely to generate less money, would mean the closure of Krystal’s remaining restaurants, with ensuing job losses and increased real estate vacancies. As a result of the KRST transaction, Krystal was left with no business and owned no assets, and Krystal’s equity owners lost their investments. Krystal then moved to dismiss the bankruptcy case. Several unsecured creditors (objectors) (creditors), who would receive no money from the bankruptcy, objected. The objectors detailed the significant hardships they suffered or would suffer by virtue of not receiving payment from Krystal. For example, one objector explained that the objector would be unable to feed poor people and help a student pay for college if Krystal were not obliged to honor a litigation settlement with the objector. Per another objector, dismissing Krystal’s bankruptcy case would be corporate welfare because Krystal’s restaurants would remain open and members of Krystal’s management would keep their jobs.
Rule of Law
Issue
Holding and Reasoning (Bonapfel, J.)
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