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quwyou.com @quwyou7/10/2024, 3:57 AM

@Nava

Laura @lmichet7/10/2024, 1:50 AM

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Just Another Apocryphal Mess @apocryphalmess7/10/2024, 2:42 AM

there's a lot that these articles about Red Lobster skip over because the truth is embarrassing: it's all private equity shenanigans again

to start with, there was the usual bullshit with private equity buying the company with its own assets, saddling it with immense debt right off the bat
Red Lobster's new owners forced the company to sell the buildings to a separate holding company (also owned by the private equity firm, naturally) and pay them rent instead, leeching even more profitability from the chain. that's what the "above-market rates for rent" line actually means; before the purchase, most Red Lobster locations owned their buildings
Red Lobster was also forced by the new owners to buy all its shrimp from a specific provider (also owned by the private equity firm, naturally), who made an enormous amount of money from the endless shrimp promotion, and the new owners insisted on keeping the promotion going even when it was draining the company dry

nearly every bankruptcy of a long-running company you see in the news these days is actually the result of private equity buying it up and sucking all the blood out of it. and you rarely get a real explanation in the regular news for reasons I shouldn't have to explain

#red lobster #private equity #capitalism

@Nava7/10/2024, 3:49 AM

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in reply to @lmichet's post:

lucas @LukeC7/10/2024, 1:54 AM

I believe this was debunked already and the reason they closed was like most other big retail chains: they got bought by a private equity firm

@bromic7/10/2024, 2:01 AM

Who then sold all their real estate to another company that they spun off, resulting in RL suddenly needing to pay rent where they did not previously

signal eleven @widr7/10/2024, 2:42 AM

it wasn't so much debunked as revealed that the equity ghouls owned the shrimp place too, and used the egregious overpurchasing of shrimp as a means of looting the company

eevee @lexyeevee7/10/2024, 3:10 AM

i like the idea that there's a group of Ultimate Endless Shrimp experts you can call about this sort of thing

in reply to @apocryphalmess's post:

signal eleven @widr7/10/2024, 5:40 AM

the screenshat article is softballing so hard with the idea that "they hoped" they would actually recoup and that this idiot move would turn out to be wise for the company specifically

when really they clearly just did it on purpose, the board of the company maybe could have stopped it but they're compromised and asleep at the wheel and don't have much of an angle to hit back even though they've been sabotaged. like even the fact that this very article is saying it this way is carrying water for the innocence of the private equity owners in a theoretical civil court case

i mean shit how do you even draw the line there. for all we know they literally keep a stable of absolute bungling morons on retainer, give them directives of what other of their portfolio companies to do business with, and then fire them out of a cannon into the management of the company to be looted

Dabo @daboross7/10/2024, 8:16 AM

my question is who are these private equity companies borrowing money from who can't or don't try to pierce the corporate veil and go after the private equity firm for flagrant violations like this.

@EveryZig3147/10/2024, 6:40 PM

Flagrant violations of what? Their behavior is loathsome, but you can't get sued for that.

Dabo @daboross7/10/2024, 8:05 PM

specifically, the idea behind corporate finance laws. as i understand it, the corporate veil is the term for how you can take on debt as a company, and the owners of the company are not liable for that debt.

i believe it is, at least in theory, illegal to extract an unreasonable amount of money out of a company such that it defaults on it's debts. i think if you do this directly by paying money out to owners as profit, then it would be a pretty open and shut case for the debt holders to also then pierce the corporate veil and hold the owners liable for that debt?

like if you create an LLC, and rack up debt under that LLC but exclusively for personal purchases, then have the LLC go bankrupt, that's open and shut embezzlement right? and then iirc the debt holders can sue you, and you become liable for the debt the LLC owed.

like... why aren't those debt holders able to sue the owners for buying infinite lobsters from another company owned they own, siphoning the money indirectly. I don't understand what part of the system is broken such that the debt holders aren't able to hold the private equity company liable for Red Lobster's debt.

it is a case of not understanding, though. I'm sure there's a way this makes sense I just am confused with my cursory layman's level of corporate law understanding.

Dabo @daboross7/10/2024, 8:15 PM

i think this wikipedia article may also shed light on what i would hope would happen: https://en.m.wikipedia.org/wiki/Piercing_the_corporate_veil

Grabbing a few paragraphs,

this is listed as one reason a US court might consider piercing the corporate veil:

"proximate cause": as a reasonably foreseeable result of the wrongful action, harm was caused to the party that is seeking to pierce the corporate veil.

the harm is to whoever lended Red Lobster money to be bought. they won't get their money back.

in terms of factors, I think this is relevant:

Failure to maintain arm's length relationships with related entities;

Red Lobster pretty clearly here made a bad business move of infinite lobsters with the intention to advantage the company selling the lobsters to them, which is related due to being owned by the same private equity firm.

Also relevant:

Manipulation of assets or liabilities to concentrate the assets or liabilities;

And if the story of filling the board with incompetent officers who won't object checks out,

Non-functioning corporate officers and/or directors;

Christian Simmers @Xuelder7/10/2024, 11:40 AM

The craziest part of all of this is that private equity at it's average is a worse investment scheme than just putting your money in index funds. And a bunch of public and private pension fund money is invested in this scheme as well.

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