Why Businesses go Bankrupt: CB Holding (Charlie Brown’s Restaurants)

CB Holding, the company that owns restaurant chains Charlie Brown’s, Bugaboo Creek and The Office, filed for bankruptcy under Chapter 11 on Wednesday, November 17th.   CB Holding announced that it was closing nearly half of its restaurants, and is looking to sell its 39 remaining restaurants.  A CB spokesman told the “Newark Star Ledger” that the 29 closed restaurants were targeted for “under-performance” and that the company would work with the 2,300 displaced workers to “help them find jobs, both within and outside the company.”

The CB Holding bankruptcy petition states the company has assets of $100 – 500 million, and liabilities of $50 – $100 million, so there apparently was not an accounting insolvency (i.e., liabilities greater than assets) at the time of the filing, and it is not even clear from the reporting whether there was a technical insolvency (i.e., firm unable to meet its obligations.)   It appears likely that this was a strategic bankruptcy, planned by CB Holding’s principal owner, the private equity firm Trimaran, to enhance the restaurant chains’ value, prior to a sale.

One of the most famous strategic bankruptcies was Continental Airlines, which declared bankruptcy in 1983 so it could break its high cost union labor contracts, and more effectively compete with new non-union airlines, following the deregulation of the airline industry.   But Continental stayed in the airline business, while Trimaran is exiting from restaurants, as quietly as possible.   I agree with Fortune Magazine writer Dan Primack who recently wrote: “when you fire 2,000 workers workers without warning – in a lousy labor market to boot – then you should at least explain why it happened.”