Red Lobster, the nation's largest seafood chain, has filed for Chapter 11 bankruptcy protection after experiencing financial strain caused by its ill-fated all-you-can-eat shrimp promotion. The unexpected closure of nearly 100 Red Lobster locations last week pushed the company to the brink, leading to its decision to seek bankruptcy protection.

The seafood chain, based in Orlando, Florida, had previously implemented a $20 unlimited shrimp promotion in the summer of 2022. This promotion subsequently caused Red Lobster's largest shareholder, Thai Union, to write off a staggering $530 million in the fourth quarter. In response, Red Lobster's CEO, Jonathan Tibus, has disclosed that the company is investigating Thai Union's involvement in the shrimp fiasco. Tibus alleges that the Thailand-based seafood company, which owns a 49% stake in Red Lobster, had an outsized influence on shrimp purchasing, thereby contributing to the company's financial woes.

Blame has been directed at a previous Red Lobster CEO, Paul Kenny, who made the decision in May 2023 to make the $20 unlimited shrimp promotion a permanent menu item. The decision was reportedly made despite significant objections from other members of the management team. The repercussions of this promotion were felt through major shrimp shortages at Red Lobster establishments. The filing disclosed that Thai Union and Kenny had encouraged excessive merchandising of the promotion, resulting in a lack of certain types of shrimp for extended periods.

Red Lobster's financial struggles have also been attributed to cost reductions imposed by Thai Union. According to a former Red Lobster executive, the company's largest shareholder forced significant cost reductions that ultimately hurt sales. The seafood chain now owes its 36,000 employees $16.7 million in unpaid wages.

While Red Lobster plans to keep its remaining restaurants, including the Times Square location in Manhattan, open and operating during the bankruptcy proceedings, it intends to reduce the number of locations and pursue the sale of substantial assets. This filing will grant Red Lobster temporary protection from evictions and unpaid bills from vendors.

During last week's sudden closures of numerous Red Lobster locations, employees arrived at work only to find signs posted on the front doors announcing the closure. In the aftermath of these closures, the company held 52 auctions to sell off furniture and supplies. Revenue generated from these auctions varied, with one Denver restaurant reportedly earning $34,601 from the sale of furniture and most of the kitchen equipment.

Red Lobster has secured $100 million in financing commitments from its existing lenders. However, the company's liabilities exceed $1 billion, highlighting the challenges it faces. As a part of its restructuring plan, Red Lobster has entered into a "stalking horse" purchase agreement, which involves selling its business to an entity controlled by its existing term lenders.

CEO Jonathan Tibus expressed that the decision to file for bankruptcy is seen as the best path forward for Red Lobster. He believes that this restructuring will allow the company to address its financial and operational challenges and emerge stronger and more focused on growth.

In the coming months, Red Lobster will navigate the bankruptcy process, hoping to regain stability and return to profitability.