Chapter 11 Bankruptcy: Arizona’s Star Buffet

Arizona bankruptcy case studyOn September 28, 2011, Grand Canyon-state restaurant conglomerate, Star Buffet, Inc., filed for Chapter 11 bankruptcy in Arizona. Last week, the Arizona District U.S. Bankruptcy Court approved the corporation’s disclosure statement. A confirmation hearing is set for this summer.

Background of Star Buffet’s Arizona Chapter 11 Bankruptcy Filing

Star Buffet, Inc. operates approximately 40 restaurants in 15 states including Arizona, Alabama, Florida and Arkansas. Some of their more well-known establishments include WesterN SizzliN steak-buffet, K-BOB’s Steakhouse and Casa Bonita Mexican-style eateries.

Last September, the company filed for Chapter 11 bankruptcy after revealing they had $22.4 million in assets and carried $21.4 million in liabilities. Summit Family Restaurants – and entity associated with Star Buffet, Inc. – also filed for Chapter 11 one day after Star Buffet; the two debt relief cases are being jointly administered.

The bankruptcy confirmation hearing is set for July 12, 2012.

Why an Arizona Chapter 11 Bankruptcy for Star Buffet Instead of A Chapter 7 or Chapter 13?

There are three types of bankruptcy a business can pursue in Arizona – Chapter 7, Chapter 11 and Chapter 13. In short, Chapter 7 is most often used by those who are deep in debt and need to liquidate; Chapter 13 – commonly known as “wage earners’ bankruptcy” – is the class of debt relief reserved for those earning a substantial income and are only temporarily unable to pay back their debts; Chapter 11 bankruptcy is designed for companies whose whole is worth more than the sum of its parts.

In simple terms, Chapter 11 bankruptcies are intended for businesses that can most readily resolve their debt issue by remaining operational. Moreover, under Chapter 11 bankruptcies, it’s common that creditors end up getting more back than they would in a chapter 7 situation, plus jobs are usually saved.

Since Star Buffet was determined to have enough assets and current business to be considered a potentially profitable entity moving forward, the corporation was eligible for Chapter 11 bankruptcy restructuring.

What’s Next In The Star Buffet Arizona Chapter 11 Bankruptcy Case?

In Arizona, Chapter 11 filings begin by the debtor – with the help of an Arizona bankruptcy attorney – creating a payback/debt relief plan. This plan is then submitted to the court. Once the court has a chance to review the proposal, they either approve or reject what is called the “disclosure statement.” If the disclosure statement is approved, then the party filing for bankruptcy can solicit creditors’ approval of the payback plan.

At this point, Star Buffet, Inc. and Summit Family Restaurants have gotten the court’s stamp of approval on their disclosure statement. That means, between now and their confirmation hearing in July, the restaurant conglomerate will be meeting with their creditors to seek approval of the Chapter 11 bankruptcy plan.

Check back in July to find out how Star Buffet’s Arizona Chapter 11 bankruptcy turns out.

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