On the 2015 bankruptcy
If you searched my name, and came acros the bankruptcy and surrounding news, I’d rather you heard it from me.
In 2015 the franchise organization I founded and led went through Chapter 11. My brother and I were minority owners but personal guarantors on much of the company’s debt and leases, which forced us into personal bankruptcies the following year. The business had grown to more than 200 restaurants across seven states, with about 4,000 employees.
I don’t have a grievance about it and I’m not going to relitigate it here. I made the capital decisions. I also spent those years on a political fight I believed in and knew was expensive, and I’d make that trade again.
Several things arrived in the same window.
On June 25, 2013, Immigration and Customs Enforcement served a company-wide Notice of Inspection covering three years of records and more than ten thousand employees across roughly a hundred restaurants. We had used E-Verify, required a W-9 to verify Social Security numbers, had employees sign immigration compliance acknowledgments, trained the managers who completed the I-9s, and hired two national law firms to audit every form. In November 2014 ICE returned Notices of Suspect Documents and Discrepancies naming more than twelve hundred people, about five hundred of them active employees. We let them go, flew eighty managers and trainers into Arizona to rehire and retrain, and did it over the holidays going into the Super Bowl in Phoenix. Our filings in the bankruptcy put the cost at approximately ten million dollars.
The rest is in those same filings: the Affordable Care Act, states moving to indexed minimum wage increases, commodity costs, and the long tail of the recession in a market that had taken years of political damage. And we had expanded on more leverage than the revenue could ultimately carry. Ten million dollars did not take down a hundred-and-fifty-million-dollar business on its own, but it was a very large rock on a scale that was already loaded.
The companies filed Chapter 11 on July 27, 2015. Our majority partner, who was not a family member, reorganized and bought the business out of bankruptcy. The restaurants stayed open and people kept their jobs. My brother and I had personally guaranteed much of the debt and the leases, so we filed personally in January of 2016.
It is the most costly education I’ve received, and it is a substantial part of why I am useful to the brand owners I work with now. I know what a downside cycle looks like from the inside, what covenants do under stress, and what it costs to be wrong about how much debt a business can carry. Many people advising brand owners haven't had that experience.
In March 2016, eight months after the filing and while the case was still open, I put my name on an amicus brief to the Supreme Court in United States v. Texas, alongside sixty-two other employers and business leaders, making the same argument about immigration enforcement I had been making since 2007. I have written about what that audit actually cost an employer who followed the law here, and the surrounding decade is set out in the record.