Buffets creditors eye trustee appointment, cite conflicts of interest

By Caroline Salls

Pittsburgh, Nov. 15 – Buffets, LLC’s official committee of unsecured creditors asked the U.S. Bankruptcy Court for the Western District of Texas to appoint a Chapter 11 trustee to oversee the company’s case, according to a motion filed Tuesday.

“Not only do the members of debtors’ management have numerous conflicts of interest, but, as a result of such conflicts, they have eschewed their fiduciary duties as managers, officers and directors of the debtors, both before and during the debtors’ bankruptcy cases, and sought exclusively to promote and protect their own interests to the detriment of the debtors and arms-length creditors and parties in interest,” the motion said.

The committee said the company insiders admitted during recent depositions that “many corporate formalities largely have been ignored and the debtors have had no independent or disinterested managers, officers, or directors since the insiders’ acquisition of the debtors in August 2015, seven months before the bankruptcy petitions were filed.”

According to the motion, the insiders caused Buffets to make in excess of $4 million in preferential cash transfers to one or more of the insiders while the company was insolvent and during the 90 days leading up to the filing of the bankruptcy petitions.

The committee said the insiders also caused Buffets to make in excess of $1.58 million in additional preferential cash transfers less than a week before the filing of the bankruptcy petitions.

In addition, the creditor group said under the domination of the insiders, the company has failed to investigate any of the numerous avoidance actions against the insiders that appear to be available to the bankruptcy estates.

Also, the committee said the insiders recently caused Buffets to initiate a sale process that includes sale of potentially valuable estate causes of action against the insiders.

The committee said the insiders have also inserted provisions in the Buffets debtors’ proposed Chapter 11 plan that call for the partners to retain their equity interests without providing any new value, while proposing to leave unsecured creditors with an unsecured “hope note” in the approximate amount of $4 million against more than $125 million in claims.

“Given these and potentially numerous other conflicts of interest, appointment of a Chapter 11 trustee is necessary in order to protect the interests of the debtors’ bankruptcy estates, as well as arms-length creditors and parties in interest,” the motion said.

Based in Hollywood Park, Texas, Buffets operates a chain of buffet-style restaurants. The company re-entered Chapter 11 bankruptcy on March 7, 2016 under the case number 16-50557.

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