Things will probably work out for Heartland Automotive Services Inc. of Omaha, Neb, a 438-unit Jiffy Lube franchisee filing Chapter 11 bankruptcy as it will probably sell/close underperforming and money-losing units.Chapter 11 bankruptcy, the business filing usually continues to operate while a bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts and its contracts, so that the company can make a fresh start. Often, if the company’s debts exceed its assets, then at the completion of bankruptcy the company’s owners (stockholders) all end up with nothing; all their rights and interests are terminated and the company’s creditors end up with ownership of the newly reorganized company. The other type of bankruptcy is chapter 7, whereby the business ceases operations and a court appointed trustee sells all of its assets and distributes the proceeds to its creditors in accordance with statutory defined priorities.The large franchisee most likely negotiated favorable terms when faced with closing or selling units, such as reduced transfer fees, low or no penalty for closing a certain number of units, delays in royalty payments when filing bankruptcy, etc.
According to a statement on Heartland’s Web site, the company filed for Chapter 11 because of what it calls a “breakdown of negotiations with Jiffy Lube International to resolve long-simmering disputes regarding the companies’ relationship” over advertising and marketing, and support from the franchisor, product pricing from JLI’s parent, Shell Oil Co., and expansion strategies.Economic pressures in the volatile gas and oil market were also cited as reasons for the filing.Heartland said it anticipates going back to the negotiating table with JLI after the initial stabilization phase of its reorganization, which was to go heard in court on Jan. 23. If settlements still can’t be reached on the issue, Heartland said it will seek a rejection of its franchise agreements and rebrand the business.Heartland said in the statement that it had $8 million in cash on hand at the time of the filing.