Bankruptcy for Burger King franchisee

Date AddedSeptember 01, 2009 01:37:07 AM

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A major Brooklyn Burger King franchisee, AJA New York Restaurant Holdings, filed for Chapter 11 bankruptcy protection. Citing assets between $1 million and $10 million, and liabilities in the same range, the company owes money to fewer than 50 creditors.

AJA New York, under the leadership of Chief Executive Alfred Poe, three years ago acquired the nine Burger Kings, located in Brooklyn and Queens, from N.J.-based Coastal Management Corp.

Mr. Poe could not be reached on Thursday. His legal counsel, Daniel Brown of law firm Damon Morey, said the downturn prompted the filing.

"Because of market conditions, [AJA New York] fell behind in making their franchise payments," Mr. Brown said. He noted that none of the nine locations would be closed, and that AJA New York was already seeing an uptick in August business due to a new marketing promotion. At least four of the nine Burger King locations were still in operation as of Thursday afternoon. The phones at the other five outposts listed on Burger King's Web site had either been disconnected or were not answered.

The bankruptcy filing follows a July lawsuit in which Miami, Fl.-based Burger King Corp. sued AJA New York for breach of contract in the Southern District of Florida. The case, which is listed on in public filings online, alleges that AJA New York breached contract agreements by failing to pay Burger King monthly fees for royalties, advertising and other receivables. According to the Tuesday bankruptcy filing, AJA New York owes Burger King headquarters over $841,000.

Mr. Brown said he had no knowledge of the lawsuit, adding that his client has not been served with papers.

"We expect that the franchisee's nine Burger King in Brooklyn, N.Y., will remain open during the bankruptcy process," a Burger King corporate spokeswoman said. "BKC has worked closely over the past two years with the franchisee to assist him during his period of financial difficulty."

Some industry experts were surprised that AJA New York was forced into bankruptcy by market conditions, since other fast-food chains such as McDonald's have been strong performers during the recession.

"Burger King is a value proposition, so I would think [AJA New York] would be benefitting from people trading down," said Andrew Moger, CEO of restaurant development firm BCD. He noted that in the past, other Burger King franchisees have had problems with low sales as a result of the fast-food company's value menu promotions. A Burger King restaurant on East 47th Street in Manhattan closed about a year ago as a result.

"When [these franchisees] are paying New York rents, it's hard to justify a $1 hamburger," Mr. Moger said.