November 25, 2004 in Business

Burger King franchisee files for bankruptcy

By The Spokesman-Review

One of the region’s largest Burger King franchisees filed for bankruptcy last week, citing weak sales caused by the chain’s slumping national market share.

Garliz Investments LLC of Post Falls employs about 500 people at 25 Burger Kings in three states. Its restaurants include six Burger Kings in Spokane, along with operations in Airway Heights, Coeur d’Alene, Post Falls, Hayden, Cheney, Colville and other locations in Washington, Idaho and Oregon

Manuel Garcia, managing member of the family-owned firm, could not be reached for comment Wednesday. In court documents, however, he said Garliz Investments wants to continue operating the restaurants while the company works out a plan to pay back creditors. The company filed for Chapter 11 reorganization under the bankruptcy code.

Burger King’s share of the hamburger market fell from 19 percent to 15 percent in the last several years. According to Business Week, franchisees controlling 600 Burger Kings have filed for bankruptcy, or are experiencing financial troubles. Last year, Burger King hired a Los Angeles firm to work with franchisees, their creditors and Burger King Corp.

In court documents, Garliz Investments lists debts of $19.3 million, and assets of $5.8 million. The company said its sales have dropped by 30 percent.

“The reasons for the decline are likely many, but there is no disagreement that sales nationwide have been in decline, and that a notable percentage of Burger King franchises are in default, in bankruptcy, or struggling to avoid both,” Garcia said in court documents. “In the last three years, (the) Burger King system has seen approximately 1,500 stores close.”

Garcia and his wife, Esther, formed Garliz Investments in 1996. The company borrowed more than $15 million from its largest creditors – Citicorp and G.E. Capital – for new restaurant locations, fixtures and remodeling.

Garliz Investments also owes Burger King $2.1 million in unpaid royalty fees and advertising-fund contributions, according to court documents.

“Garliz sought to be proactive in meeting these economic challenges,” Garcia said in court documents.

The company hired a firm to negotiate a settlement with Burger King, Citicorp and G.E. Capital, according to the documents. But Burger King declared a default under its franchise agreements, and filed a lawsuit against Garliz Investment earlier this month.

Garliz Investments filed for bankruptcy to protect its franchise ownership, Garcia said in court documents. Without the franchise, the value of other creditors’ collateral would have diminished, according to the court filing.

In documents filed Friday, Garcia also asked the bankruptcy court to continue to allow him to pay wages, utilities and payroll taxes, so the restaurants can continue operating.

“Possibly contrary to popular belief, employees of fast food restaurant are not exclusively high school students earning extra money but are parents with families to support, many of whom live paycheck-to-paycheck,” he said in court documents.

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