Quiznos' reorganized company to sue ex-managers over fraud-related charges

The disclosure statement of bankrupt sandwich chain Quiznos revealed that it will be pursuing litigation against its former managers, which will include Chief Executive Officer Greg MacDonald, former Chief Financial Officer Dennis Smyth, former owners and directors Richard E. and Richard F. Schaden. Forbes newsmagazine said that the accused reportedly had a hand in the alleged misrepresentations with the restructuring of the company back in 2012. Quiznos is said to be filing charges along with second-lien debtholders Avenue Capital and Fortress Capital, who had acquired shares in the company in the 2012 restructuring.

Quiznos has claimed in its 2012 disclosure statement that Avenue and Fortress both agreed to absorb $150 million worth of the sandwich chain's debt under the second-lien credit agreement. Because of the transaction Avenue and Fortress are now recognized as primary equityholders of Quiznos at 72.6% and 27.4% holding interests respectively, and that Avenue also poured an additional $150 million into the firm, which was initially bankrupt at that time. It is to note that Quiznos' bankruptcy filing this year would be the second time for the company.

The sandwich chain claimed that their investigation over misconduct that allegedly arose during the restructuring in 2012 revealed fraudulent acts to deceive Avenue and Fortress.

"(Our investigation revealed that internal financial projections and related communications) demonstrate that the financial projections created ... and provided to the debtors' then-existing lenders in connection with the 2012 restructuring were not reasonable and gave the false impression that after the 2012 restructuring the debtors could service their debt obligations and sustain their new capital structure." Quiznos had said.

Quiznos also said that because of the misconduct by its former and current executives had induced Avenue and Fortress to unknowingly invest in an unsustainable capital structure, and leading them to exchange their first-lien claims into second-lien debt. Moreover, the fraudulent claims also lead Avenue to acquire 60% of the company for $150 million.

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Quiznos bankruptcy, Quiznos bankruptcy fraud lawsuit

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