As creditors pick through the scraps of bankrupt Austin-based sandwich shop franchisor Schlotzsky’s (previous posts here), attorneys for those creditors teed off on former company owners and chief executives — brothers John and Jeff Wooley — in a San Antonio federal court in a lawsuit that alleges that the brothers ruined the company through a series of reckless transactions that drained cash at critical junctures.
As is typical in most reorganizations of retail businesses, the sale of the assets typically does not generate enough cash to pay any dividend on unsecured creditors’ claims. Thus, those creditors are often left with no prospect for any recovery on their claims unless they can extract some funds through a lawsuit against the company’s former owners or third parties that took advantage of the company’s financial difficulties. Normally, the success or failure of such a strategy is more directly related to the net worth of the targets of such a lawsuit than the validity of the claims asserted in the lawsuit.