Fat Brands sued by lender over cash use during bankruptcy

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352 Capital, one of Fat Brands’ creditors, sued the company last week to contest Fat’s attempt to use management fees and other cash to fund operations during the company’s Chapter 11 bankruptcy process.

At issue is Fat’s proposed use of securitization receivables, defined as “certain management fees and other residual amounts payable to FAT Brands as manager of the securitization entities,” according to lawsuit. 352 Capital said that it owns these receivables and Fat cannot use this cash to fund its operations.

If 352 Capital wins this case, Fat, which owns Fatburger, Round Table Pizza, Fazzoli’s and more than a dozen other chains, could have difficulty paying for its operations during the bankruptcy process.

The creditor, which holds over $100 million of Fat’s debt, has taken issue with Fat Brands in the past. Days before Fat Brands filed for bankruptcy protections on Jan. 27, 352 Capital sued the chain, saying it was owed Class B stocks of Twin Hospitality as collateral for unpaid debt, according to Restaurant Business.

Fat Brands and Twin Hospitality declared bankruptcy following months of ongoing talks with various creditors related to more than $1 billion in outstanding debt.

The case is complicated as it involves five different securitization trusts secured by different brands. A group of creditors filed an emergency motion in early February calling for CEO Andrew Wiederhorn’s ouster after a $3 million sale of Twin Hospitality stock was completed following the bankruptcy petition date and without court approval. While the emergency motion has been tabled after Fat’s lawyers said issues with corporate governance have been addressed, Wiederhorn’s position could still be contested during an upcoming March court date related to the bankruptcy case, according to a Feb. 10 hearing related to Chapter 11 proceedings.