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Seafood chain Red Lobster will ask Canadian court to enforce U.S. bankruptcy in Canada

Days after Red Lobster filed for Chapter 11 bankruptcy and announced that it would close dozens of its seafood restaurants, the chain's Canadian counterpart will ask a provincial court to enforce the U.S. bankruptcy in Canada.  (CNBC - image credit)
Days after Red Lobster filed for Chapter 11 bankruptcy and announced that it would close dozens of its seafood restaurants, the chain's Canadian counterpart will ask a provincial court to enforce the U.S. bankruptcy in Canada. (CNBC - image credit)

Days after Red Lobster filed for Chapter 11 bankruptcy and announced that it would close dozens of its seafood restaurants, the chain's Canadian counterpart will ask a Canadian court to enforce the U.S. bankruptcy in Canada, CBC News has learned.

An application will be brought before the Ontario Superior Court of Justice on May 28 to have the U.S. bankruptcy recognized and enforced in Canada, Canadian counsel Linc Rogers confirmed to CBC News on Thursday.

Red Lobster Canada, Inc., a Delaware-incorporated company that owns and operates Red Lobster restaurants across Canada, was part of the Chapter 11 filing in the U.S. It's listed as a "related debtor" in the filing.

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"There is currently a stay in proceedings in place in Canada preventing any creditor from taking action in Canada against [Red Lobster] Canada and certain affiliated entities," Rogers wrote.

The casual dining chain, which at its peak operated 700 restaurants across the U.S. and Canada, posted major financial losses in the U.S. in late 2023 — partly due to an all-you-can-eat-shrimp promotion that became a permanent staple of its menu last summer.

Daniel So, a franchise lawyer in Victoria, B.C., said that the Chapter 11 bankruptcy will give the chain time to assess which of its Canadian locations are profitable.

"It really gives them a lot of runway to figure out whether they are going to continue to operate in Canada, or if they're going to start closing down some of the locations up here," he said.

"The real estate that they own up here can be of great value and they'll have some time to negotiate with the landlords and creditors," he said.

If the court approves Red Lobster's application — So believes it will — that would prevent creditors in Canada from pressuring the U.S. company that owns the chain's Canadian locations.

Court filings showed that Red Lobster was investigating the role that seafood supplier Thai Union, which held a minority stake in the company, played in the promotion that caused $11 million US in losses.

A spokesperson for Thai Union told CBC News last month that it had exited its investment in Red Lobster and would not comment further.

LISTEN | How Red Lobster's endless shrimp deal led to its downfall: 

'Not a lot of evolution'

Robert Carter, an analyst and managing partner at the StratonHunter Group, says he believes there's a possibility that Red Lobster can continue in Canada, even with a U.S. shutdown.

"I wouldn't say there was really strong growth, but they had a good core customer base, they were known for their specific menu offerings as that seafood player overall. So they did carve out a niche," Carter said.

While the chain's growth in Canada has been relatively stable, Carter says Red Lobster operates in what's called the "premium casual space" of the dining sector, which has seen a lot of growth in the last decade.

"You think of players like The Cactus Club and Browns Socialhouse and even The Keg with their expansion. So, the competition became much more aggressive and the Red Lobster brand just did not keep pace," he said.

"There was not a lot of evolution in the business for Red Lobster in the Canadian marketplace."