ALBUQUERQUE, N.M. — Some of Flying Star’s creditors are pushing a plan to sell the cafe chain to new owners, and an established local restaurant company has formally agreed to bid $2.5 million for it at auction.
Southwest Brands, parent company of Garduño’s and Keva Juice, has put $100,000 into escrow as part of its plan to buy Flying Star’s ongoing business, according to a new filing in the cafe chain’s Chapter 11 case in U.S. Bankruptcy Court.
Paul Fish of Modrall Sperling, the attorney who filed the reorganization plan on behalf of Flying Star’s unsecured creditors committee, said he believes such creditors would end up with more money under this plan than the competing plan recently submitted by Flying Star’s founders and owners Jean and Mark Bernstein.
The Bernsteins’ attorney, James Askew, disagreed, saying Wednesday that the unsecured creditors would fare better under the Bernsteins’ plan.
Under the plan that Fish filed Tuesday, the creditors would form a “sale and collection committee” to take over Flying Star and put it up for auction. Southwest Brands has agreed to bid $2.5 million, according to the documents. The money would allow Flying Star to immediately pay administrative costs associated with the bankruptcy case and cover some other claims against Flying Star — including taxes and debts owed to secured creditors, like lenders — in full.
Unsecured creditors with an estimated $3.7 million worth of claims would share the remaining amount of about $1.1 million, Fish said in an interview. However, he said they could eventually get more money since the plan allows creditors to seek additional funds believed to be owed to Flying Star from the Bernsteins and Satellite Coffee.
While the Bernsteins and some of their other businesses have their own claims against Flying Star, the creditors plan to challenge those so-called “insider claims, according to their plan.
Tug Herig, president of Southwest Brands, said should his company succeed in purchasing Flying Star, the plan is to keep the six-location chain in operation and even to “rehire” the chain’s existing employees. Herig described Flying Star as a strong New Mexico brand that he and partners Jim Long and Jack Harney want to carry forward. “We see an opportunity to take a New Mexico business and protect it and keep it around for years to come,” he said.
But the Bernsteins do not appear ready to give it up, having filed their own reorganization plan with the court that would keep them in control. Under their proposal, filed last month, the Bernsteins would surrender all existing equity in the company and their individual financial claims against it and put in an extra $1.5 million. They would pay some creditors in full immediately, some others in full on an installment basis and have $790,101 left to pay unsecured creditors.
Once the court approves the plans’ associated disclosure statements, creditors will get to vote on the plans. The judge has the ultimate authority to confirm a plan. Fish said such a possible confirmation is likely at least three months away.