Saladworks files for bankruptcy

Saladworks, the Conshohocken-based franchised lunch restaurant chain, has filed for Chapter 11 bankruptcy reorganization in Delaware, and is searching for a buyer or new investments. The move is expected to resolve the long-running dispute between founder and chairman John Scardapane and investor Vernon Hill, the Marlton-based banker. Saladworks hired SSG Advisors, the West Conshohocken investment bank that specializes in selling troubled companies, to find buyers or investors.

Saladworks, founded in 1986. last year reported sales approaching $80 million/year at more than 100 stores in the U.S., Canada and Singapore, and plans to expand abroad. All locations remain open and unaffected by the bankruptcy filing, Saladworks spokeswoman Gail Scardapane, the chairman's wife, told me.

The bankruptcy filing, signed by John Scardapane and Saladworks President Paul Steck, lists Hill, who founded the former Commerce Bank and Metro Bank Plc of England, as Saladworks' lead unsecured creditor. Saladworks says it owes up to $8.9 million to Hill's JVSW LLC of Marlton, and up to $2.5 million to another Hill company, WS Financial LLC of Harrisburg.

Both amounts are listed as "disputed" in the filing. Scardapane's holding company, J. Scar Holding Inc., is Saladworks' majority owner. Hill's JVSW is listed in the filing as a 30% owner. The Scardapane and Hill groups have engaged in legal disputes over the control and recapitalization of the company during the past few years.

"In order to emerge from bankruptcy, I'd expect to see either a sale of the business or a 'bootstrap plan' where they'd reject unprofitable store leases, restructure their debt" and stay in business with a more attractive financial profile, Adam D. Stein-Sapir, portfolio manager at New York bankruptcy analyst Pioneer Funding Group, told me. He noted SSG does restructurings as well as sales.

Unsecured creditors include Philadelphia's Stradley Ronon law firm, which Saladworks owes $352,000; with smaller amounts owed landlords, professional services firms and food suppliers. SSG expects to conclude the sale process over the next three months.