Mexican restaurant chain Chilango is preparing to enter administration putting over 150 jobs at risk, after the coronavirus pandemic hammered the already struggling casual dining company.
In an email sent to shareholders today, a spokesperson for the company said that while Chilango had “done our very best to mitigate the pandemic’s impact… these efforts have not been sufficient to secure the future of our business”.
Chilango will give notice of its intention to appoint administrators in the coming days, the spokesperson said.
The company, which crowdsourced £5.8m from around 1,500 small investors through its so-called burrito bonds, was struggling with rising operational costs and mounting debts even before the coronavirus pandemic ground much of the restaurant industry to a halt.
Chilango’s creditors passed a company voluntary arrangement (CVA), news of which was first reported by City A.M., in January. Rescue measures included slashing rents at three of its 12 restaurants and exiting four leases on dormant sites.
Under the CVA, investors who backed Chilango’s mini-bond offerings were offered a stark choice between having their investments converted into debt-like shares in the company or receiving 10p per pound they originally invested.
The vast majority of its shareholders opted to convert their investments into equity. Chilango has now paused the process of converting the burrito bond debt into preferential shares, investors were told today.
The chain said the process had been paused “to ensure the position of bondholders was not changed or worsened by any steps which might need to be taken, pending the discussions now underway to secure the business’s future”.
Some 14 mini-bond buyers opted to cash out investments totalling £47,500 just ten per cent, while six other investors also chose to cut their losses on investments totalling £79,500, according to Companies House filings.
Sources suggested to City A.M. that one of the company’s co-founders, Eric Partaker, was planning to purchase it out of administration. Chilango said this was not the case, and that neither Partaker or his co-founder Daniel Houghton were planning to buy the business.
“Chilango’s business was built on quicksand”, one shareholder told City A.M. They accused the company of “trying to hide behind a hospitality industry that has genuinely suffered from Covid-19”.
“This is not the situation we had hoped to be in after our investors approved our CVA back in January,” the Chilango spokesperson wrote to shareholders.
“It is all the more frustrating given the positive trading before the lockdown. Prior to the pandemic Chilango’s positive like-for-like sales growth continued,” they added.
Chilango was grappling with £6.9m of debt at the end of last year, according to its CVA documents.
Auditor Grant Thornton refused to sign off the company’s most recent accounts in November, and the accounts are now almost seven months overdue on Companies House.