KFC Israel Operator Files for Bankruptcy Amid 50 Million Shekel Debt

Smart Service, the Israeli franchisee for the fast-food chain KFC, has filed an urgent request with the Beersheba District Court to initiate insolvency proceedings and appoint a temporary trustee. The company cited significant financial difficulties, with debts and liabilities totaling approximately 50 million shekels. Smart Service, which began operating KFC branches in Israel in 2020, operated a peak of 13 locations and currently runs 12 across the country, including in Tel Aviv, Netanya, Petah Tikva, Rishon LeZion, Ashdod, and Haifa.

The company attributes its financial crisis to the repercussions of the October 7th attacks and the subsequent "Swords of Iron" war, which led to a decline in revenue and commercial activity. Factors such as reduced tourism, a slowdown in consumer spending, and a lack of customers, coupled with high operating expenses, have exacerbated the situation. The company also noted that further military escalations, including those involving Iran, have negatively impacted business transactions. Despite efforts to streamline operations, reduce costs, and adapt menus, the company has struggled to meet its financial obligations.

In 2024, the company reportedly incurred losses exceeding 9 million shekels. While revenue grew from approximately 47 million shekels in 2022 to about 63.4 million shekels in 2023, ongoing operational costs and declining activity have deepened its cash flow crisis. A significant portion of the company's liabilities is owed to its shareholders, who have provided around 37 million shekels in owner loans. Additionally, the company owes approximately 1.9 million shekels to employees, 1.2 million shekels to authorities, and 9.5 million shekels to regular creditors.

Attempts to find a strategic investor have so far been unsuccessful. A complicating factor is the difficulty in transferring new capital into the company, as its shareholders are Russian citizens, and sanctions on Russian financial institutions hinder fund transfers to Israel. The company has also faced challenges with landlords, struggling to pay rent for some branches and receiving demands for payment and eviction notices. Former employees have also issued a notice of intent to pursue insolvency proceedings.

Smart Service argues that an immediate cessation of operations would devalue its assets, while continued operation under court supervision could facilitate a recovery. The company is requesting the appointment of a temporary trustee to oversee its activities, a stay on legal proceedings, and permission to continue operating its branches during an interim period. They have presented an initial 60-day operational plan, subject to court approval, aimed at maintaining revenue and reducing expenses. The primary goal, the company states, is to prevent collapse and enable continued operation, preserving the rights of employees, landlords, suppliers, and creditors as much as possible.