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Law360 (January 26, 2021, 11:34 AM EST ) American affiliates of Canadian restaurant business Yatsen Group sought Chapter 15 recognition in Delaware bankruptcy court, saying COVID-19 has ravaged its business and left its locations unable to pay rent.
Yatsen Group of Companies Inc., SAR Real Estate Inc. and 36 affiliates filed their petition late Monday, while a foreign, main case proceeds in Canada. Yatsen operates over 226 restaurants in 34 states and Puerto Rico, according to court filings, and said the pandemic pulled its revenues down 46% year-over-year in 2020, and many of its restaurants are still closed.
"Like many other similarly situated businesses, the COVID-19 pandemic has had, and continues to have, a significant detrimental impact on the business," Alan Hutchens of Alvarez & Marsal Canada Inc., the court-appointed monitor and authorized foreign representative for Yatsen, said in first-day declarations. "The company continues to face tremendous uncertainty and instability caused by the COVID-19 pandemic."
Most of Yatsen's locations are in malls, with about 32 of its restaurants at street level, and 41 of its restaurants are franchised rather than company-owned, according to the declarations.
The debtors are facing 15 legal actions, from eviction to breach of contract lawsuits, over alleged failures to pay rent, court filings show. The various actions, brought by nine different landlords, concern about 96 restaurant locations, Hutchens said.
According to Hutchens, Yatsen's operating companies and franchisees stopped paying rent beginning in April 2020.
Yatsen has about $1.3 million in assets and about $675,000 in liabilities, according to the declarations. Since Yatsen also guarantees a number of the leases involving its affiliate SAR Real Estate and some of its individual entities, it also faces up to $8.4 million in liabilities related to unpaid rent, the declarations said.
SAR Real Estate has nearly $23 million in assets and liabilities, mostly related to its leases, according to the declarations.
A Canadian court on Monday allowed Yatsen to tap into debtor-in-possession financing of up to C$5 million ($3.94 million), with up to C$500,000 available over the first 10 days of the court proceedings, the declarations said.
Yatsen has requested that the court recognize the Canadian proceedings as the foreign main proceeding and other first-day relief. A hearing on those requests is currently scheduled for 11 a.m. on Wednesday.
Counsel for Yatsen did not immediately respond to a request for further comment Tuesday.
Yatsen is represented by Betsy L. Feldman, Michael R. Nestor and Matthew B. Lunn of Young Conaway Stargatt & Taylor LLP and by Mark Minuti of Saul Ewing Arnstein & Lehr LLP.
The case is In re: Yatsen Group of Cos. Inc., case number 21-10073, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Alyssa Miller.
Update: This story has been updated with more details and with counsel information for Yatsen.
For a reprint of this article, please contact reprints@law360.com.
