Great Circle Family Foods, once the largest franchisee of Krispy Kreme Doughnuts Inc. stores, has filed for bankruptcy protection, listing assets and liabilities of as much as $100 million and as many as 199 creditors.
Los Angeles-based Great Circle, founded in 1998 to develop Krispy Kreme stores in Southern California, listed General Electric Capital Business Asset Funding Corp. as its largest secured creditor, owed $7.5 million. The franchisee is still operating nine stores and manages three others.
Five associated legal entities, which operate under one management, also filed for bankruptcy protection this week.
“The enormous sales year of 2004 was the peak for Great Circle,” the company said in a Chapter 11 petition filed in U.S. Bankruptcy Court in Santa Ana. “The fall from May of that year has been precipitous.”
Winston-Salem, N.C.-based Krispy Kreme, which operates about 400 doughnut shops nationwide, has been closing unprofitable stores built during an aggressive four-year expansion following its 2000 initial stock sale. The company has been hurt by alleged misconduct by former management, trends toward healthier food and bankruptcies among other franchisees.
Brian Little, a Krispy Kreme spokesman, and Ron Bender, a lawyer for closely held Great Circle, didn’t return calls seeking comment.
Great Circle asked the Bankruptcy Court’s permission to use cash on an interim basis until a hearing could be set. Without it, the company said, a closure of stores could have a “devastating impact” on its ability to reorganize. The franchisee also asked to be allowed to pay employees, who numbered 290 at the time of the filing.
Great Circle sued Krispy Kreme in 2005, claiming the second-biggest U.S. doughnut chain was trying to force it into bankruptcy with unreasonable supply charges. Krispy Kreme agreed to buy three California stores for $2.9 million in July 2006 to resolve the dispute after Great Circle threatened to shut 28 stores.
According to the bankruptcy petition, Great Circle’s biggest unsecured creditor is Piege Co., a Chatsworth-based company that does business as Felina Lingerie, claiming $642,872. A Piege representative wasn’t immediately available for comment.
Krispy Kreme was listed as the second-biggest unsecured creditor with $426,449. ABN Amro Bank and KB Home were also listed among creditors.