Wendy’s, through subsidiary Quality Is Our Recipe, filed an objection to Meritage Hospitality Group’s first-day motions in a Chapter 11 bankruptcy case. The company claims that the franchisee doesn’t have the rights to continue operating its 314 remaining restaurants, according to a Monday court filing.
QIOR terminated Meritage's franchisee agreement on Sept. 16 after the operator failed to pay over $27 million in past-due obligations related to royalty, advertising and other fees. The next day, Meritage filed for Chapter 11 bankruptcy protections.
QIOR claims that by granting the debtor its first day motions, the court would allow Meritage to operate restaurants that no longer fall under a franchise agreement. QIOR argues this arrangement not only violates state and federal law, but would also “add debt and waste estate resources without any resulting benefit to the Debtors.”
If the court denies Meritage’s first-day motions, QIOR said that it would consider granting a short-term, post-petition license to operate the restaurants while they are transferred to Wendy’s or other franchisees and allow Meritage to “wind down their business.”
If the court approves the first-day motions, QIOR said that Meritage would need to make “prompt payments” under an interim license — on the same terms as under the terminated franchise agreements — and such amount should be considered as part of a Cash Collateral Motion.
Meritage filed for bankruptcy protections after enduring declining revenue and negative net income. It went from being one of Wendy’s top-performing operators in 2022 to defaulting on its obligations within four years. Meritage blamed skyrocketing beef prices as well as declines in traffic tied to ineffective marketing as well as poor weather in the South during the winter. Deep discounting and national promotions also impacted margins.
The last time a major Wendy’s franchisee filed for bankruptcy in 2020, the franchisor attempted to buy nearly 400 restaurants from now-defunct NPC International. Flynn Group ended up taking about half of NPC’s Wendy’s units, while purchasing its over 900 Pizza Hut units. The remaining Wendy’s units went to a consortium of Wendy’s franchisees.
