Emersons, Ltd., the troubled restaurant company based in Rockville, announced yesterday that it will file bankruptcy papers if negotiations with major lenders on a new credit agreement are not concluded this week.
Company president Bill Jackson, who noted that Emersons has been suffering from an inadequate flow of cash for several months, said that without a new credit pact a petition will be filed under Chapter XI of the Federal Bankruptcy Act.
In a Chapter XI proceeding, a company files voluntarily for court protection of its assets and seeks approval from creditors for a reorganization of debts and required payments.
Jackson revealed in a statement yesterday that his firm's financial difficulties have been "aggravated by the unusually harsh winter weather which has materially reduced sales during a historically slow season of the year."
Last December, Emersons said it needed additional financing and a restructuring of current debts to continue "as a going concern." In the wake of a probe launched last year by the Securities and Exchange Commission, which alleged that former officers of the firm compiled fraudulent and over-optimistic reports on profits and sales, Emersons has experienced reduced business and has been seeking to dispose of unprofitable units under a new management.
A special audit late last year showed a net loss for Emersons of $3.5 million in the 20 months ended June 27.
Jackson, who took over as president last fall, said yesterday that negotiations have been conducted with banks, leasing companies and institutional lenders on a reorganization of debts. Emersons also has been seeking new working capital, which would be secured.
While Emersons has obtained agreements in principal with major lenders on establishing a moratorium for principal and interest payments, "negotiations have faltered on the precise terms for amortization of certain existing unsecured indebtedness," Jackson stated.
If a bankruptcy petition is filed, presumably at U.S. District Court in Hyattsville or Baltimore, Jackson said Emersons will seek approval to continue current management. A company statement said Jackson is "optimistic about ultimately reaching a satisfactory plan of arrangement with creditors."