Dive Brief:
- Fat Brands CEO and Chairman Andrew Wiederhorn has agreed to take a temporary leave of absence from the company through the remainder of its bankruptcy process, according to court documents filed Wednesday. Wiederhorn can still issue a bid for the company during the sales process.
- Wiederhorn’s family members will end their employment at the company, while all of Fat’s board members, aside from members of the special committee overseeing its bankruptcy, will resign from their positions
- These moves are part of an agreement between the company and its creditors and lenders to issue debtor-in-possession financing to allow Fat Brands to maintain operations during the bankruptcy process.
Dive Insight:
Creditors have been pushing for Wiederhorn’s ouster since February, after they learned that he oversaw the completion of a stock sale of Twin Hospitality without court approval. That sale began prior to the company's Jan. 26 bankruptcy filing, but was completed after that date.
That led to growing contention between Fat Brands and the lenders, with Fat calling the creditors’ move a personal attack on Wiederhorn. The creditors and Fat Brands have since been in mediation, which led to the current settlement agreement.
As part of that agreement, a special committee will oversee the company’s affairs going forward and pick a chief executive officer, which could be the current chief restructuring officer or deputy chief restructuring officer, a business executive or any other person selected by the special committee, per the court document.
As part of its debtor-in-possession financing facility, Wiederhorn will receive $3 million upfront and $2 million in four installments, and members of the board will receive any unpaid compensation through the end of March. Creditors agreed to withdraw two motions associated with Wiederhorn’s ouster and appointment of a trustee.
DIP financing remains critical for the business, as Fat entered bankruptcy with only $2.1 million in unrestricted cash. Chief restructuring officer John DiDonato said in a separate court filing that the terms of the agreed order were “fair, reasonable, and in the best interests of the Debtors, their estates, and all parties in interest.”
Ongoing litigation related to the creditors’ motions were “time-consuming, expensive, distracting, and disruptive" to ongoing Fat Brands operations and restructuring efforts, he said.
By obtaining DIP financing, Fat Brands will be able to maintain its operations and preserve valuable assets, including "intellectual property, brand goodwill, factory operations, and owned restaurants,” DiDonato said.
This will be particularly important as the company begins a sale process in April.
“The Debtors will be positioned to demonstrate to their franchisees, customers, vendors, employees, and the market that they are sufficiently capitalized to continue operations during these Chapter 11 Cases and can obtain confirmation of a Chapter 11 plan,” DiDonato said.
