Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

There may be plenty of fish in the sea, but it looks like there may be too many tacos.

Taco Del Mar Franchising, a fast food restaurant chain based out of Seattle, Oregon, recently decided filing bankruptcy after some rapid expansion.

The company was founded in 1992 by two brothers – James and John Schmidt. In 10 years there were 70 franchises.

Then, in 2002 the owners saw the potential with their restaurants and, according to the Seattle Times, Taco Del Mar went on an “expansion spree.” Now there are around 225 franchises that are mainly located in Seattle, but the company also has locations throughout the U.S, Canada and Guam.

They hired contractors called master developers who searched for interested franchise owners to open up Taco Del Mar restaurants.

The contractors also scoped out prime locations to place the restaurants. In exchange for setting up the stores they received half of the franchisees’ initial fees and ongoing loyalties.

So by 2008 the company boomed and there were 270 locations. Their revenue increased significantly but with the increase in business also came more expenses.

The company, whose names translates to Tacos of the Sea, lost big chunks of revenue between 2006 and 2008. In all, they were lost $2.8 million as they suffered from the economic downfall along with many other restaurants.

Greg Treperinas, Taco Del Mar’s bankruptcy attorney, said that some of the company’s debt issues occurred due to failed franchises and unpaid rent owed to the landlords.

Taco Del Mar used to guarantee their leases to their franchisees so if their business went under they would cover any unpaid rent. The company decided to abandon that business practice.

Treperinas also said that the company is facing a lawsuit from one of their Maryland franchises seeking $500,000 in damages. Few details about the case have emerged, but Taco Del mar has disputed any allegations against them.

Taco Del Mar’s debt was listed between $1-10 million in the bankruptcy papers. They list more than 20 unsecured creditors including, including the company’s former president, David Huether.  Huether supplied $86, 875 that the company borrowed for operating capital

They owe business and occupation taxes to King County that was never paid. CEO Larry Destro said that filing for bankruptcy “offers an opportunity to grow without the constraints of imposed by the current debt burden and threats of litigation.”

The franchises were not listed in the bankruptcy filing as they are individually owned and operated.

The holding company that owns Taco Del Mar, Conrad and Barry Investments, is also filing for bankruptcy. Their total debt is listed at $448,362 to Banner Bank.