Dive Brief:
- SQRL Holdings’ creditors are trying to force it into Chapter 7 bankruptcy protection about a month after the convenience retailer sold all of its stores, according to filings in the U.S. Bankruptcy Court Eastern District of Arkansas.
- According to court documents filed this week, attorneys representing three of SQRL’s creditors, including its stores’ new owner, Gas Hub LLC, informed SQRL’s leadership that the creditors have filed for a petition for involuntary bankruptcy. They’re seeking to force SQRL into Chapter 7 due to “breach of membership unit purchase agreement.” Gas Hub claims that it is owed over $3 million from SQRL for unpaid rent payments.
- After bursting onto the c-store scene less than a year ago, SQRL’s last several months have been littered with financial troubles, lawsuits and a federal investigation into the company’s actions.
Dive Insight:
When SQRL unexpectedly announced last month that it sold its convenience stores to Gas Hub, the company appeared to be moving toward firmer financial footing. According to a company memo obtained by C-Store Dive at the time, the sale aimed to resolve “significant liquidity issues” SQRL was facing.
On May 13, attorneys served SQRL’s executives Blake Smith and Adam Lusthaus with summons that they’re being forced into bankruptcy. Smith and Lusthaus have 19 days to file a motion with the court or else the order of relief will go through, the filing notes.
Although Gas Hub’s purchase of SQRL’s c-stores has officially closed, Gas Hub was under the impression that SQRL’s leases were all up to date and that its rents were paid, Sidney Scheinberg, an attorney from the law firm Godwin Bowman who is representing the creditors, said in an interview.
However, that wasn’t the case. Scheinberg noted that the $3 million Gas Hub has claimed against SQRL is for these rent payments, which he noted SQRL hasn’t paid from April “and perhaps March.”
“We thought everything had been paid and was up to date,” he said. “We took over and the first thing we started getting were notices from the landlords saying ‘Your rent’s not paid.’”
When asked what the ideal outcome is in this situation, Scheinberg said that Gas Hub remains intent on operating SQRL’s convenience stores.
“That was their goal and it continues to be their goal,” he said.
The court document shows that two other creditors, K&A Endeavors LLC and MT Everest Investment LLC, are also part of the petition, accusing SQRL of “breach of sale agreement.” K&A claims it is owed over $61,000, while MT Everest noted over $62,000.
Representatives from SQRL did not respond by press time to a request for comment.
SQRL made headlines last October when it acquired 210 locations — which were formerly leased to bankrupt retailer Mountain Express Oil — from real estate investment trust Blue Owl Capital. Founder Blake Smith later noted SQRL’s aspirations to reach 500 locations by the end of 2024.
Over the next several months, SQRL laid off hundreds of full- and part-time employees as it took on a new operating model to give store managers a “vested interest” in the locations they ran. Smith said in an interview at the time that managers would also control their stores’ staff and payroll “like a franchisee,” which was the foremost reason for the layoffs.
In early April, the U.S. Department of Labor’s Wage and Hour Division confirmed that it was investigating SQRL for the third time since 2021.
According to the Arkansas Business Journal, Smith stepped away from the company in February due to health reasons, with Lusthaus, a SQRL partner, becoming the new CEO. However, a corporate SQRL employee refuted this, while the company’s CFO said he “can’t confirm or deny that one” when asked about Smith’s whereabouts.
