NYC Coffee Shop Chain Uses Section 363 Sale to Find Another Owner

The coffee shop chain Fika opened in New York City in 2006. The company was known for its sleek modern ambience, and its shops became very popular. 10 years after it opened, Fika had 17 locations in the city, and its owner was telling people that the company intended to expand into more U.S. cities and countries overseas

Two years later, Fika is down to 6 shops and it has filed for Chapter 11 bankruptcy. Unhappily for the original owner, the company has been sold to a third party using the procedures of Sec. 363 of the Bankruptcy Code. The company was brought down by an overly ambitious expansion plan. The company issued a press release stating that each new location incurred significant start-up and operating costs that could not be covered by operating revenue. The company was therefore unable to secure additional investors to fund the expansion costs.

The use of Sec. 363 to dispose of a debtor’s assets is generally viewed as a vehicle to shortcut the normal bankruptcy auction procedures. In this case, a group of clients of one of the attorneys involved formed Fika Acquisitions, LLC to purchase Fika’s assets in November of 2018. Sec. 363 transactions typically use a “stalking horse offer” to set a baseline purchase price for the debtor’s assets. The original Fika entity remains in bankruptcy, but its assets are earning money for the new buyers.

Sec. 363 purchases can provide benefits to both the purchaser and the debtor, but those benefits come with significant risks, including public disclosure of the terms of the sale. Anyone considering either a sale or a purchase under Sec. 363 may want to get more information about bankruptcy options.