Creditors accuse former owners of Old Country Buffet of abusing PPP funds
A group of creditors for the company that once owned a buffet empire accuses its former owners of embezzling up to $ 20 million ahead of its April bankruptcy filing, including $ 4 million in program funds. paycheck protection.
Lawyers representing creditors on some $ 75 million in unsecured debt have raised the issue of funds in the Fresh Acquisitions bankruptcy case, whose now-closed buffet brands and six-unit Tahoe Joe steakhouse have been sold to the owner of Famous Dave’s.
At one point, the brands represented a nationwide buffet empire that included Old Country Buffet, HomeTown Buffet, Ryan’s and Furr’s.
“As the case unfolded, it became clear that it was being viewed as a fait accompli for the benefit of the owners of the debtors in total disregard of the creditors holding the $ 75 million in debt. [they] had amassed and planned to discharge, ”said a committee representing unsecured creditors in the Fresh Acquisitions bankruptcy in its case.
The committee wants the bankruptcy court to appoint a trustee who could eventually sue the former owners of the business to recover the $ 20 million and distribute the funds to creditors who still owed millions as a result of the filing.
The filing, a rival bankruptcy plan to that filed by Fresh Acquisitions, is the latest twist in what has become a bizarre and complex affair.
Fresh Acquisitions, also known as Buffets LLC, was owned by a company known as Food Management Partners which had acquired various brands at low cost, usually after bankruptcy. This included buffet concepts, which at one point had over 650 locations but by 2016 had dropped to 90. It has closed more over the years and closed what was left over last year amid the pandemic.
The company filed for bankruptcy in April and struck a sale deal with a company called VitaNova for $ 3.2 million, which would have paid off a loan that VitaNova provided to put Fresh through the bankruptcy process.
The bankruptcy court judge, however, dismissed the sale in August, after creditors raised questions about the relationship between VitaNova and the brand owners – they had the same CFO and the same office address, for example – as well. as pre-bankruptcy transfers.
One of the transfers took place on April 21, 2020, the day after Buffets LLC received a $ 10 million loan from the Paycheck Protection Program that has since been canceled. According to the file, Buffets transferred $ 4 million to an affiliate, TXFMP Management, which has not been filed for bankruptcy.
The committee said it had not received any documents regarding the transfer. Fresh Acquisitions claimed the funds had been used to repay debts, but the creditors’ committee contends that such payments are “avoidable” or represent the use of P3 funds for “improper purposes”.
According to the filing, the company also paid TXFMP a “management fee” of $ 7.6 million on $ 68.2 million in revenue between January 2020 and March 2021. This includes a management fee of $ 5.1. million dollars paid by Buffets out of just 360,106 dollars in total revenue. The committee said this represented an overpayment of $ 4.9 million in management fees owed to TXFMP.
The committee is also asking for information on previous years, however, to see if there have been additional management fee overpayments, according to the record.
Creditors also argue that there have been millions of additional transfers as well as credit card debt spreads. In total, creditors claim that $ 19.75 million could have been embezzled in the lead-up to filing.
But the group also wants an administrator to investigate the sale by Fresh in 2015 of a food production facility “without apparent consideration”.
The facility, according to creditors, is worth $ 24 million.
The committee also estimates that the owners’ financial statements suggest a net worth of $ 62.7 million, including $ 32.6 million in cash, which “would be recoverable through litigation.”
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