Red Lobster Canada will ask an Ontario court next week to recognize a stalking horse bid from its lenders and approve a sales process for its assets.

Court filings made on behalf of the beleaguered seafood chain’s Canadian operations earlier this week say the matter will be heard by the Superior Court of Justice on June 18, as long as a U.S. court approves the sales process before then.

The filings made on June 11 say the steps are meant to "preserve" Red Lobster’s business in Canada and the employment of the company's 2,000 workers stationed at 27 restaurants across the country.

A stalking horse bid is an offer to buy a bankrupt firm or its assets that is arranged ahead of an auction and typically sets a floor price for the assets. The documents say the bid will give lenders a chance to sell the company’s assets in a way that maximizes their value and helps them avoid the risk of them being sold for an unreasonably low price.

The sale procedures, which could include an auction, "are designed to encourage all prospective bidders to put forward their highest and best bid, bring finality to the debtors’ sale process, and create a path toward approval of a sale order," court records say.

They add the bid will be “market-tested” to ensure the company nabs the highest or otherwise best offer, or combination of offers, for the Red Lobster business as a whole or its assets. 

Linc Rogers, a lawyer representing Red Lobster Canada, declined to comment further on the matter. Red Lobster Canada did not immediately respond to a request for comment.

The filings made in Canada come after Florida-based Red Lobster Management LLC shuttered dozens of locations in the U.S. recently and filed for Chapter 11 bankruptcy protection, which a Canadian court agreed to recognize last month.

Jonathan Tibus, chief executive of Red Lobster Management, said in an affidavit that since an Ontario court recognized the U.S. proceedings, "Canadian restaurants have continued to operate in the ordinary course."

The chain, which was founded in the U.S. in 1968 and counts 550 restaurants in its home country, expanded to Canada in 1983, but only has a presence in four provinces — Ontario, Manitoba, Saskatchewan and Alberta.

Stuart Brotman, a lawyer representing information officer FTI Consulting, previously told an Ontario court that Red Lobster Canada "has been and is expected to continue to be cash flow positive."

Tibus, however, has noted that the entire company is facing challenges, including "disruptions to its supply chain, hyperinflation affecting food, labour and delivery costs, substantial increases in the cost of capital and real property leases, and shifts in casual dining trends both during and after the COVID-19 pandemic."

Since the health crisis, filings show Red Lobster's annual customer count has only "marginally improved" and is down 30 per cent from 2019.

The company heavily promoted its “Ultimate Endless Shrimp” deals to combat the headwinds it was facing, but Tibus said in court records that they amounted to a "significant cash drain" that cost Red Lobster US$11 million.

Since June 2023, he's been working to reduce spending, "simplify" the menu and "implement a sensible promotional calendar with fewer limited-time offers."

The company announced a Crabfest promotion on Thursday, using Flavor Flav to boost the slate of deals.

When the company announced its Chapter 11 proceedings, the member of U.S. rap group Public Enemy, posted on X, formerly known as Twitter, that he wanted to use his platform to "help save one of America’s greatest dining dynasties."

This report by The Canadian Press was first published June 14, 2024.