Popular fast food chain files bankruptcy as it faces lawsuits

Three women are eating at an outdoor table. Lead. DBK.

The restaurant industry continues navigating through the aftermath of the Covid-19 pandemic, as many fast-food and fast-casual chains battle financial distress related to reduced foot traffic, as well as inflated food prices and rising interest rates.

Fast-casual Tex-Mex chain Tijuana Flats Restaurants on April 19 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida, after launching a strategic review in November 2023 seeking answers for turning around the struggling chain.

The company sold the company to a new ownership group, closed 11 of its locations and filed for a bankruptcy reorganization to revitalize its restaurants and reinvigorate the customer experience.

Reorganization, however, is not an option for another restaurant chain, as Foxtrot and Dom’s Kitchen & Market, with 33 locations across the U.S., filed for Chapter 7 liquidation on April 23 after failing to recover from financial distress dating back to the Covid pandemic.

Another restaurant chain, Sticky’s, will have a chance to recover from the Covid pandemic’s effects through a reorganization plan.

Sticky’s to reorganize in Chapter 11 

Sticky’s Holdings, the parent company of New York-based chicken fingers fast-food chain Sticky’s, filed for Chapter 11 bankruptcy on April 25 to reorganize its business after suffering financial distress from reduced traffic following the Covid pandemic, rising commodity prices, and lawsuits.

The debtor listed $5.75 million in assets and $4.67 million in liabilities in its petition. It’s largest unsecured creditor is US Foods, owed over $449,000.

Sticky’s, which opened in 2012, grew in sales from about $500,000 in 2013 to $22 million in 2023, but the Covid pandemic that significantly affected the restaurant industry starting in 2020 depressed store traffic. Revenue suffered and foot traffic has not returned to pre-pandemic levels even after the pandemic subsided, according to a declaration filed by Sticky’s CEO Jamie Greer.

Rising inflation caused commodity prices to increase, forcing Sticky’s to raise its menu prices, which further stifled traffic to the restaurant chain. As part of its efforts to reduce costs, the company in early 2021 exited its corporate offices on East 33rd Street in New York before its lease expired, according to the declaration.

Legal problems drive restaurant chain to bankruptcy

The debtor’s landlord filed a summary judgment on June 22, 2021, to recover the remaining rent and legal fees, which a court granted with a $600,000 award. The debtor has appealed the judgment costing the company more in legal fees.

More legal problems fell on Sticky’s as on June 30, 2022, Sticky Fingers Restaurants LLC filed a lawsuit against Sticky’s Holdings in the U.S. District Court for the Southern District of New York for alleged trademark infringement violations. The costs and expenses related to the ongoing litigation has imposed significant further financial hardship on the debtor, court papers said.

More Bankruptcy:

The debtor on Feb. 23, 2024, entered into an equity financing transaction that converted $2.42 million in convertible notes issued Nov. 9, 2022, and due March 31, 2024. The transaction substantially reduced the debtor’s short-term liquidity needs, the declaration said. However, the company’s financial headwinds prevented the debtor from continuing operations leading it to file bankruptcy to seek a reorganization.

Sticky’s is a chain of chicken fingers  and sandwich restaurants that serves fresh, never frozen and antibiotic-free chicken. It offers 18 in-house sauces for its chicken products.

Sticky’s currently operates 12 locations, with nine in New York and three in New Jersey. It has closed two locations in New York and one each in New Jersey and Pennsylvania. The company had established a franchise entity to operate potential franchise operations, but none opened.