KFC Israel Operator Files for Bankruptcy Protection Amid Financial Crisis

Smart Service, the operator of 13 KFC fast-food restaurants in Israel, has filed an urgent request with the Beersheba District Court for insolvency proceedings and the appointment of a temporary trustee. The company cited a severe cash flow crisis stemming from the war, a drop in revenue, and the closure of some branches as reasons for its financial distress.

The company is seeking to continue operating its businesses under court supervision in an attempt to salvage the chain and formulate a recovery plan. The filing, handled by Aviad Kremer, head of the insolvency department at Wexler Bergman, comes after accumulating debts and liabilities totaling approximately NIS 50 million.

According to the filing, after a period of growth and significant investment in opening new branches, the company encountered difficulties following the events of October 7, 2023, and the ensuing war. The company claims the war led to a sharp decline in revenue, a shortage of customers, and damage to commercial activity. Subsequent rounds of conflict, including those involving Iran, further impacted revenues.

While the company's revenue reached approximately NIS 63.4 million in 2023, up from NIS 47 million in 2022, high operating expenses exacerbated the cash flow crisis. Despite efforts to streamline operations, including cost reductions, menu adjustments, new product development, and technological investments, and despite shareholders injecting approximately NIS 37 million over the years, the company's financial situation did not stabilize.

In recent months, the company struggled to meet rent payments for some of its branches, leading to eviction demands and debt settlement notices from property owners. Former employees also sent a notice of intent to pursue insolvency proceedings. As of the filing, the company owes approximately NIS 1.9 million to employees, NIS 1.2 million to authorities, NIS 9.5 million in ordinary debts, and NIS 37 million to shareholders.

The company argues that immediate cessation of operations would significantly diminish the value of its assets, whereas continued operation under supervision could facilitate its recovery. It requests the court appoint a temporary trustee to oversee operations, maintain lease agreements, and prevent collection and eviction proceedings during the interim period. A preliminary 60-day operational plan, prepared by CPA Nir Hakim, outlines continued branch operation, revenue preservation, and expense reduction, contingent on court approval.

The company emphasizes that the request aims to prevent its collapse and enable continued business operations, preserving the rights of employees, landlords, suppliers, and creditors as much as possible.