Lenders want Andy Wiederhorn, CEO of Fazoli’s owner Fat Brands, suspended over a stock sale. | Photo: Shutterstock.
A group of Fat Brands bondholders are asking a court to suspend the company’s CEO, Andy Wiederhorn, without pay over an apparently unauthorized sale of Twin Peaks stock last week.
According to a filing by a group of the company’s bondholders, Fat Brands closed on an offering of 9 million shares of Twin Hospitality Group, the parent company of Twin Peaks.
The filing said that Fat Brands reached an agreement after filing for bankruptcy to sell the stock to White Lion Capital for $3.1 million.
White Lion then sold that stock to the public “for an unknown amount.” The filing suggested that the bondholders have no idea who owns White Lion Capital or “whether that entity has any connection to Mr. Wiederhorn. We do not know how much money White Lion may have made on this transaction. And we do not know whether the transaction violates securities laws or will give rise to further shareholder litigation.”
The bondholders worry that Wiederhorn may drive down the company’s valuation so he can buy it out of bankruptcy at a low price.
The group noted that, during a hearing on the company’s bankruptcy last month, lenders worried that there would be “no protection for the estates or creditors while Andrew Wiederhorn and his family retained total control” over the company, which owns Fatburger, Fazoli’s and several other brands.
“These Chapter 11 cases are very likely to be resolved through a sale process,” the filing says. “Mr. Wiederhorn has always indicated that he thought himself a suitable buyer. He is certainly free to bid. But he cannot use his control over the company to drive down the price or to manipulate the process to gain an unfair advantage for his own benefit.”
Fat Brands’ chief restructuring officer advised the court that various professionals and a special committee overseeing the company “could prevent further misconduct.”
“It took less than 48 hours for Mr. Wiederhorn to prove those assurances wrong,” the group said in a court filing this week.
Fat Brands filed for bankruptcy last month with about $1.5 billion in secured debt, arising out of a series of aggressive acquisitions of restaurant chains in 2020 and 2021.
Wiederhorn, who founded the company around his original holding, Fatburger, has always been a controversial figure. He spent 14 months in prison in 2004 and 2005 over tax charges and faced more charges recently over an alleged $47 million loan scheme. Those charges were dropped last year.
Fat Brands itself has been subject to numerous lawsuits, from shareholders, franchisees and others, over its handling of the company’s finances. One shareholder in December accused the company of masking its cash flow problem. Franchisees have been suing the brand, accusing the company of raiding marketing funds.
Wiederhorn exerts considerable control over the company. Wiederhorn himself is CEO, and two of the three top executives—other than CFO Ken Kuick—are his sons. Most of the company’s board members are related to Wiederhorn in one form or another. That did not change after the company filed for bankruptcy. Just before the bankruptcy filing, Fat Brands gave large raises and retention bonuses to Kuick and the two Wiederhorn sons.
“Mr. Wiederhorn has total control over these debtors,” the filing says. “He has the ability to appoint the board, and he has used that authority to remove directors that did not bow to his will and replace them with a hand-picked board stocked with his relatives.
“Mr. Wiederhorn uses his unrestrained power to benefit himself at the expense of the company and stakeholders.”
The filing says that Wiederhorn has “a pattern of putting self-interest ahead of good governance and it was for grave concern about how these debtors would be managed” after the bankruptcy filing.
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