Maryland’s attorney general on Friday suspended Burgerim’s right to sell franchises in the state, citing problems with the company’s franchise disclosure document, as questions about the chain’s current status mount.
The suspension means the Encino, Calif.-based chain cannot sell franchises in Maryland, and the company will be required to “show cause why its franchise registration in the state should not be revoked.”
Burgerim, which opened its first location in California in 2016, told franchisees last month it was considering bankruptcy, hired bankruptcy attorney Michael Berger and named Michel Buchbot its chief restructuring officer.
That notice, however, included an email address for Buchbot that was no longer operable. And the company has not been answering the phones at its Encino headquarters.
Brian Frosh, Maryland’s attorney general, cited the possibility of a bankruptcy filing in suspending Burgerim’s registration.
Frosh noted that Burgerim’s franchise disclosure document, or FDD, which all franchises must file and make publicly available, was not updated to disclose that it had hired insolvency counsel and appointed a chief restructuring officer.
“Investing in a franchise involves significant cost,” Frosh said in a statement. “Franchisors must submit accurate, up-to-date information in their disclosure documents, allowing potential franchisees to make informed decisions about whether to purchase a franchise.”
Burgerim has yet to file for bankruptcy, and there has been some uncertainty whether it even will. But Berger told Restaurant Business this week that a bankruptcy filing is likely and could happen by the end of the month.
“I think there’s going to be a bankruptcy filing at the end of January,” Berger said. “There are a lot of creditors, a lot of lawsuits. Existing franchisees need support and need training. And lawsuits are not adequately being addressed.”
Meanwhile, California’s Department of Industrial Relations said that Burgerim had 12 claims filed against it for unpaid wages in 2019, and 20 since 2016. Half of the 2019 wage claims were filed in November and December.
Burgerim, which last year was named one of Restaurant Business'Future 50 chains for its remarkable unit growth, has as many as 200 open locations, according to various sources. The chain’s 2018 FDD says the chain expected to open 351 locations in 2019.
Berger said this week that Burgerim was in the process of moving headquarters to a place with lower rent, which is why it has not answered the phone recently. Messages sent to Buchbot through a new email address were not returned, and a phone number provided for him was not answered and did not have its voicemail set up.