facebook pixal
Financing

Creditors accuse Old Country Buffet’s former owners of misusing PPP funds

Fresh Acquisitions, whose assets were just sold to Famous Dave’s owner, is being accused of misappropriating $20 million before it filed for bankruptcy, including $4 million in Paycheck Protection Program funds.
Old Country Buffet bankruptcy
Photograph: Shutterstock

A group of creditors for the company that once owned a buffet empire is accusing its former owners of misappropriating as much as $20 million in the run-up to its bankruptcy filing in April—including $4 million in Paycheck Protection Program funds.

Attorneys representing creditors on some $75 million worth of unsecured debt raised the questions of the funds in the bankruptcy case of Fresh Acquisitions, whose now-shuttered buffet brands and the six-unit Tahoe Joe’s steakhouse were sold to the owner of Famous Dave’s.

At one point, the brands represented a nationwide buffet empire that included Old Country Buffet, HomeTown Buffet, Ryan’s and Furr’s.

“As the case unfolded, it became apparent that it was designed to be fait accompli to benefit the debtors’ owners with total disregard to the creditors holding the $75 million in debt [they] had amassed and planned to discharge,” a committee representing unsecured creditors in the Fresh Acquisitions bankruptcy said in its filing.

The committee wants the bankruptcy court to appoint a trustee who would potentially file lawsuits against the company’s former owners to recover the $20 million and distribute the funds to creditors still owed millions in the wake of the filing.

The filing, a rival bankruptcy plan to the one filed by Fresh Acquisitions, is the latest twist in what has become an odd and complex case.

Fresh Acquisitions, also known as Buffets LLC, had been owned by a company known as Food Management Partners that had acquired various brands at low prices, typically out of bankruptcy. That included the buffet concepts, which at one point had more than 650 locations but by 2016 were down to 90. It closed more over the years and closed what was left of them last year amid the pandemic.

The company filed for bankruptcy in April and had a sale agreement to a company called VitaNova for $3.2 million, all of which would have paid off a loan VitaNova provided to get Fresh through the bankruptcy process.

The bankruptcy court judge denied the sale in August, however, after creditors raised questions about the relationship between VitaNova and the brands’ owners—they had the same chief financial officer and office address, for instance—as well as pre-bankruptcy transfers.

One of the transfers came on April 21, 2020, the day after Buffets LLC received a $10 million Paycheck Protection Program loan that has since been forgiven. According to the filing, Buffets transferred $4 million to an affiliated company, TXFMP Management, that has not been placed into bankruptcy.

The committee said that it has not been provided documentation about the transfer. Fresh Acquisitions claimed that the funds were used to repay debts, but the creditors committee argues that such payments are “avoidable” or represent the use of PPP funds for an “improper purpose.”

According to the filing, the company also paid “management fees” to TXFMP of $7.6 million on $68.2 million in revenues between January 2020 and March 2021. That includes a $5.1 million management fee paid by Buffets on just $360,106 in total revenue. The committee said this represented a $4.9 million overpayment of management fees owed to TXFMP.

The committee is also asking for information from previous years, however, to see if there were additional overpayments of management fees, according to the filing.

The creditors also argue that there were millions in additional transfers as well as discrepancies over credit card debt. All told, the creditors say as much $19.75 million could have been misappropriated in the lead-up to the filing.

But the group also wants a trustee to investigate Fresh’s 2015 sale of a food production facility “for no apparent consideration.”

The facility, the creditors said, is worth $24 million.

The committee also believes that the owners' financial statements suggest a net worth of $62.7 million, including $32.6 million in cash, that “would be collectible via litigation.”

Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.

Want breaking news at your fingertips?

Get today’s need-to-know restaurant industry intelligence. Sign up to receive texts from Restaurant Business on news and insights that matter to your brand.

Trending

More from our partners