By Shane Shifflett
Twisted Root Burger was a Texas success story, expanding from
one casual restaurant in 2006 to 24 sites including restaurants,
bars, a brewery and a theater. Now, the company is moving fast in
another direction -- into bankruptcy.
The chain shut down in March. Some sites reopened in June only
to be shut down again as coronavirus cases surged. "I'm not gonna
open that restaurant at half the revenue," said co-founder Jason
Boso. "I'm gonna walk away from those restaurants. I'm not gonna
set myself up for failure."
Mr. Boso isn't giving up though. Instead, his decision to put
five of the restaurants into bankruptcy is a strategic move to keep
The 47-year-old entrepreneur is one of the early adopters of a
new law that makes it far faster, easier and more advantageous for
struggling small-business owners to file for chapter 11. He expects
to cut his liabilities by $500,000 and continue to operate the five
restaurants that filed for bankruptcy.
Bankruptcy lawyers expect a surge in small-business failures in
the coming months. The new law, they say, will make many business
owners realize that filing for bankruptcy might be a better option
than struggling for years to dig out of a financial hole,
especially with the outlook so unpredictable.
"It'll never get back to normal business," Mr. Boso said.
The new law could force more creditors like suppliers and
landlords to the negotiating table sooner. Under the old rules,
most struggling small businesses liquidated without invoking
bankruptcy, using the cash to pay their creditors, according to a
2008 analysis of credit records by Edward R. Morrison, a Columbia
Law School professor.
The new rules give small businesses options that make it easier
to file for chapter 11, providing them more leverage to renegotiate
leases and debts while continuing to operate, often under the same
Big companies have long used chapter 11, but the law was too
costly and complicated for many small businesses. Congress voted to
change that last year when it passed the Small Business
Reorganization Act, which was designed in part to preserve jobs.
The law took effect in February, and in March the coronavirus
stimulus law known as the Cares Act temporarily expanded
eligibility to businesses with $7.5 million or less in
"It was somewhat prescient," said Ryan Wagner, a restructuring
and bankruptcy attorney with international law firm Greenberg
Traurig LLP. "It was passed without the foresight of the pandemic."
The law is the most significant change to the bankruptcy code since
Since the first full week the law was in effect, overall
bankruptcies are down compared with last year, but there has been a
recent bounce in small businesses filing under the new rules. Total
weekly filings during that period have fallen 32% from 2019,
according to a report prepared by the American Bankruptcy Institute
on weekly filing statistics.
The reasons are likely federal stimulus and grace periods on
rent and other payments, according to Amy Quackenboss, executive
director of the American Bankruptcy Institute. "I do think there is
going to be a surge, " Ms. Quackenboss said.
More than 500 companies filed for bankruptcy under the
small-business bankruptcy rules since February, according to the
American Bankruptcy Institute. June was the top month for filings
with 131 cases; many were filed in states hit hard by the pandemic
like Florida, Texas, California, New York and Illinois.
Ms. Quackenboss warned that companies worried about their
futures should act sooner rather than later so they have the
resources to pay the fees that are part of a bankruptcy. "If you
are a small business and you're looking at the cash you have now
and that continues to dwindle and you don't file now you run the
risk of not being able to file in a month," she said.
Mr. Boso runs his sites as separate business entities. He's
planning to put another six of them into bankruptcy depending on
how negotiations with landlords proceed. So far, he says,
bankruptcy has cost less than expected and allowed him to cut
When Twisted Root Burger shut down in March, the business was
already carrying debt from its fast expansion. Costs piled up fast.
At one restaurant, Mr. Boso said he had fixed monthly costs of
$75,000 to $85,000. That is "not counting the food I just bought
that went bad and I had to get rid of," he said. "When it closes
down, it goes into $150,000 of debt for that one month."
Mr. Boso quickly owed nearly $1 million for supplies and other
costs. A Paycheck Protection Program loan provided cash but did
little to help him plan for the next 18 months. That is when he
Even before he filed for bankruptcy, he was able to wipe out
$500,000 in debt by negotiating with suppliers, and he's trying to
get breaks from his landlords. The new bankruptcy law isn't clear
on how leases should be treated so it would likely be up to a judge
if Mr. Boso can't reach deals with his landlords. He hasn't had to
give up equity, but he does expect to lose some of his restaurants
and maybe face lawsuits from creditors who won't make deals.
Mr. Boso's restructuring plan anticipates sales down by half in
the near future and eventually reaching 75% of their pre-pandemic
volume within 12 months, he said. With cases in Texas recently
hitting new highs, that could take longer. He also expects each
location will have to close at least once every six months to
decontaminate if an employee tests positive, he said.
He said small-business owners need to weigh their options,
including bankruptcy. "I have a little more experience than a lot
of independent restaurants," Mr. Boso said. "Smaller guys are
paying full rents and just hoping they are gonna come out of
Write to Shane Shifflett at Shane.Shifflett@wsj.com
(END) Dow Jones Newswires
July 11, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.