Fresh & Easy Fails to Impress the West, Files Chapter 11 Bankruptcy

Fresh & Easy Fails to Impress the West, Files Chapter 11 Bankruptcy

by Kylie Ora Lobell, July 2014

Fresh & Easy opened in the states seven years ago and attempted to modernize the grocery store experience. Situated solely in the west, the nearly 170 locations feature self-checkout lanes, eliminating the need for cashier-tended registers, and a stop-and-go experience. Though the store is still in operation today, last fall, it filed for Chapter 11 bankruptcy protection, according to Tiffany Hsu of the Los Angeles Times.

What went wrong?

British grocery giant Tesco opened up Fresh & Easy in 2007, targeting areas in California, Nevada and Arizona, according to Times’ Brad Tuttle. The stores are mostly small and don’t measure up to competitors like Costco and Walmart, which are highly popular in those regions because they provide a one-stop shopping experience. Vegetables are wrapped in cellophane, making it hard to inspect them, and the self-checkout lanes are off-putting to customers. The store also made its way into the market during the recession, which hit the western states hard.

Why did Fresh & Easy file for Chapter 11?

Fresh & Easy is owned by The Yucaipa Companies, an LLC based in Los Angeles. Because it’s a business and the business had plans for future recovery, Chapter 11 was the only option. By filing for this type of bankruptcy protection, the grocery chain was and is able to restructure itself and stay in business. Hsu writes that the LLC may abandon the Fresh & Easy name and reopen Wild Oats Markets Inc., a grocery store that shuttered seven years ago.

Back in September, when Fresh & Easy filed business bankruptcy, it claimed to be $500 million to $1 billion in debt, says Hsu. Under Chapter 11, the store can close unprofitable locations to save money, like it’s done in San Diego, and back out of its 36 leases if it needs to. The Yucaipa Companies can also rework payment plans with debtors and sell or reduce assets to pay those debts.

Under Chapter 11, filing businesses are allowed to liquidate their assets to pay off their debts to creditors. Fresh & Easy garnered approval to auction off their $100 to $500 million in assets when it received bankruptcy protection. In the end, Tesco ended up selling the assets to The Yucaipa Companies instead of holding that auction, however.

What are the benefits of filing Chapter 11 bankruptcy?

Chapter 11 is flexible and allows companies or individuals to file, although it’s primarily used by businesses. Unlike other bankruptcy protections, Chapter 11 doesn’t have any income requirements. You can hold onto your property and continue to operate your business when you file bankruptcy under Chapter 11, just like Fresh & Easy, and come up with a new plan for your company. It is more flexible than the frequently utilized Chapter 13 bankruptcy, and there is no set time limit to pay back debts. Usually, the debt pay-off time is three to five years, but it can be extended. This is sometimes the case for small business owners with loans for equipment as well as debtors with real property mortgages.

According to the SBA, Chapter 11, as opposed to Chapter 13, doesn’t force debtors to give their disposable income to a trustee. The repayment plans for the debtor must, however, “equal at least the amount of his or her ‘disposable income’ over a five-year period.”

Since corporations utilize Chapter 11 bankruptcy, small businesses that qualify for protection will be put on the fast track, according to lawyer Steven L. Bryson. A trustee will review and monitor your case and might ask you “to report the company’s monthly income and operation expenses, any establishment of new bank accounts and the payment of current employee withholding or other taxes,” he writes.

Are you considering Chapter 11 bankruptcy?

Under Chapter 11 bankruptcy, you are given more freedom than you are under other types of filings. If you want to keep control of your business and have a fresh outlook on how to run it, you can use Chapter 11 as a crutch until you become successful once again.