Fatburger Subsidiaries File for Chapter 11

PORTLAND - As the troubled California-based Fatburger chain continues to struggle with the economy, it has now put two of its subsidiaries into  bankruptcy. On Tuesday the company filed Chapter 11 reorganization in U.S. Bankruptcy Court for Central California for Fatburger Restaurants of California and Fatburger Restaurants of Nevada. The chief executive officer of Fatburger’s parent company, Fog Cutter Capital Group, explained in an interview with The Oregonian that the bankruptcy filings will give the companies leverage to negotiate new, cheaper leases with its landlords. Andrew Wiederhorn added, “Some landlords get it, some don’t. They are misleading the economy.  They are sitting there demanding full payment of the rent or else. So they get nothing, a dark building instead.”

An SEC report filed yesterday said that the two cases will be jointly administered and plan to continue to operate the businesses and manage their assets as “debtors in possession” in accordance with applicable provisions of the Bankruptcy Code. It states that the triggering events of the filings happened on March 31, 2009, when several of Fatburger’s subsidiaries received a notice of default and demand for payment related to certain loans totaling approximately $3.85 million from General Electric Capital Business Asset Funding Corporation (GE). The notice said that if certain payment defaults were not fully cured by April 7, then the due date would be accelerated to that date.

The report also stated Fog Cutter Capital failed to satisfy a listing requirement for the failure to timely file its Annual Report (Form 10-K) for fiscal year ended December 31, 2008. Because of that the company expects its stock to no longer be listed on the OTC Bulletin Board following the 30 to 60 day grace period.

In The Oregonian article, Wiederhorn said Fatburger had reached a tentative settlement with GE, but the bankruptcy has made it impossible to conclude the dispute.

Wiederhorn Personal Troubles

According to reports, Wiederhorn also owes more than $1 million to the IRS for personal income taxes. On March 18, the IRS filed a tax lien against Wiederhorn and his wife, but Wiederhorn said he intends to pay the IRS in full for the undisputed tax bill.

In 2004 Wiederhorn had pled guilty to the two felony charges, one for filing a false tax return and the other for paying an illegal gratuity to Capital Consultants—which lost some $350 million in union pension money to fraudulent and failed investments, although he never admitted to wrongdoing in the matter. Wiederhorn maintained that it was wrong for the government to prosecute him for a non-intent crime involving a business transaction by his former employer, Wilshire Financial Services Group, Inc. He insisted it was a transaction which had been approved by Wilshire’s in-house counsel and other attorneys.  

Fog Cutter, which purchased a controlling stake in Fatburger in 2003, dubbed his incarceration as a “leave of absence” and retained his seat on the board of directors until his return. It not only paid Wiederhorn his $350,000 salary while in prison, but also a $2 million “leave-of- absence” bonus, the same amount he was ordered to pay in restitution for his crimes.  (He paid an additional $25,000 in fines.) 

A telephone call to Andrew Wiederhorn was not returned prior to publishing.

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