Once a company files for bankruptcy protection, it puts itself at the mercy of the court. Sometimes that’s not a problem as the company enters with a plan and that plan gets executed.
In some cases, however, you might get a single vendor or creditor objects to the plan. When that happens, it can be a long drawn out case.
Related: 3 more whiskey and bourbon brands file for Chapter 11 bankruptcy
That can cause lenders to balk at the idea of continuing to fund a company whose fate they may not control. Once a lender pulls out, the company may lose its flexibility and have to move into a liquidation setting.
In other cases, the company can violate the term set by the court. In the case of two chapter 11 bankruptcy filings by the owner of Boston Market, his petition for bankruptcy protection was denied because he did not provide everything the court asked for.
That’s a very extreme case, and it does not happen that often, but if you earn the ire of the court, you run the risk of no longer having to say in the process.
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One small Mexican restaurant chain, which has filed for chapter 11 bankruptcy run a serious risk of having that converted into a chapter 7 filing.
That would mean losing control of the brand and having it liquidated under the control of a court appointed trustee.
The northeast does not have a deep tradition of authentic Mexican restaurants.
Image source: Shutterstock
Regional Mexican chain is in real trouble
Tallulah’s Taqueria, a Providence Rhode Island-based Tex-Mex restaurant, filed for Chapter 11 bankruptcy protection in early April.
The small chain’s owners, Kelly Ann and Jacob Rojas filed t voluntary petition in U.S. Bankruptcy Court.
Tallulah’s Taqueria owes 15 creditors more than $977,000.
The biggest creditors are its bank Navigant Credit Union, which it owes $338,000 and the state of Rhode Island which it owes $180,000. Tallulah’s also owes $130,000 in rent to Farm Fresh Rhode Island, $94,000 to On Deck Capital, $64,000 to Baldor Specialty Foods, $33,000 to American Express, $25,000 to Chef’s Warehouse, and thousands of dollars more to various other entities.
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Tallulah’s Taqueria claimed between $1 and 10 million in debts and $50,000 to $100,000 in assets.
“The company, which operates under several DBA names including mobile Tallulah, Tallulah Shack, and Tallulahs Tacos, operates from its principal location at 146 Ives Street and has additional locations branded as Ives Store, JTN Store, and Sims Store,” RK Consulting reported.
Tallulah’s Taqueria facing forced Chapter 7 bankruptcy
Tallulah’s Taqueria first opened in 2014.
“The owners also owe their 20 employees more than $11,000 in gross wages, tips, benefits and taxes for last week’s work period. But court documents filed Tuesday reveal that a judge is allowing the owners to pay their employees using its existing pre-petition bank account,” WPRI reported.
Tallulah’s Taqueria wants to restructure its debt, but, according to a bankruptcy watchdog, it’s not complying with the rules.
The case’s watchdog has said that the Tex-Mex restaurants owners have not followed the rules set for it by the bankruptcy court under its original Chapter 11 filing. That court official has called for the Chapter 11 filing to be dismissed and for the company to move immediately to a Chapter 7 bankruptcy filing.
“It sought to stay open while resolving its financial troubles. But the company continued to use its pre-petition bank account, failed to file monthly operating reports, and didn’t provide bank statements when asked, according to the Office of the U.S. Trustee,” Providence Business Journal reported.
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Tallulah’s Taqueria is famous for its Chicano-style tacos, tortas, quesadillas and burrito bowls. Every dish is made using hand-made tortillas, sustainably-raised meats, fresh seafood and locally-sourced produce.
The company appears to have closed all its locations, but there were complaints on Reddit of some locations being open erratically before the Chapter 11 filing, so it’s unclear if the chain has fully closed.