Early in FAT Brands’ bankruptcy case, a fight over control of the company has erupted.
At the center of the dispute is a January 30 stock sale, four days after FAT Brands and related entities filed for bankruptcy. Twin Hospitality Group issued 9 million shares of common stock to White Lion Capital for about $3.1 million without court approval.
The Ad Hoc Group of Securitization Noteholders—which say it holds about $990 million, or 85 percent, of certain notes—filed an emergency motion February 5 seeking to suspend Wiederhorn without pay and shift control to the company’s Special Committee.
The creditors argue that the financial move shows current oversight controls are ineffective and describe Wiederhorn’s authority as “dictatorial control.”
FAT Brands pushed back on the creditors’ assertions.
The company acknowledges court approval should have been obtained before issuing the shares but disputes the characterization of the event. In its filing, FAT Brands calls the motion “a personal attack” and says there is “no actual emergency here.”
According to the company, White Lion approached FAT Brands about purchasing additional shares under an existing agreement, and internal securities counsel was consulted before proceeding. After bankruptcy counsel determined court approval was required, the company says it placed the $3.1 million in a separate account and has not used the funds.
The company also says the sale did not personally benefit Wiederhorn and calls his requested removal “extreme and not supported by the circumstances or the law.”
“Abruptly removing Mr. Wiederhorn now would be disruptive, likely value-destructive to the Debtors’ operations,” the filing states.
The U.S. Trustee appointed to the case also objected.
While the Trustee describes the allegations about the post-bankruptcy stock sale as “deeply troubling,” he also argues that transferring power to the Special Committee is not allowed under bankruptcy law.
“If a chapter 11 debtor-in-possession suffers management failures and the inability to satisfy its fiduciary duties, the only remedy is the appointment of a trustee. That’s it,” the court document states.
FAT Brands, which operates 18 concepts including Fatburger, Johnny Rockets, Fazoli’s, Great American Cookies, and Round Table Pizza, filed bankruptcy on January 26, with plans to restructure more than $1.4 billion in debt. Because of the filing, the company was delisted from Nasdaq on February 4.
