by Lawsuit against B. Riley also is dismissed
WILMINGTON, Del. – The reorganized debtor Franchise Group and AF Newco agreed to drop their lawsuits, filing a joint stipulation of dismissal in the U.S. Bankruptcy Court for the District of Delaware. The mutual decision ends a contentious battle over whether AF Newco fulfilled its obligations to FRG after acquiring 33 American Freight stores more than a year ago.
FRG fired the first shot in September 2025, suing AF Newco for breach of contract beginning in May of that year. FRG sought damages and a court declaration that an oral agreement between the two parties was valid and enforceable. More specifically, FRG wanted AF Newco to help wind down payroll and HR systems, continue hosting services and file tax documents.
AF Newco hit back a month later, filing counterclaims that it amended in November. The company argued the opposite, which is that the Transition Services Agreement had simply expired, leaving AF Newco with no remaining obligations. AF Newco then went on offense, seeking at least $673,000 in damages for breach of the Asset Purchase Agreement and claiming missing inventory.
In the end, both sides simply withdrew their claims. Under the agreed dismissal, all claims and counterclaims are dropped with prejudice, meaning neither party can resurrect these grievances in the future. Each side will absorb its own legal costs.
Buddy Mac and Buddy’s Franchising stand down, as well
Separately, in Dallas, a federal bankruptcy judge signed off on a similar settlement between Buddy Mac Holdings and its former franchisor. The litigation’s settlement removes one of the last hurdles for BMH’s sale out of bankruptcy to principal lender Phonix RBS. Like the FRG-AF Newco dismissal, the BMH-Buddy’s Home Furnishings agreement ends litigation between the two parties without any money exchanging hands.
BMH was once the largest franchisee for Buddy’s Home Furnishings, but had its franchise agreement revoked in September last year. BMH then filed for bankruptcy protection in early December.
There are two important carve-outs in the settlement, however. BMH preserves its existing claims filed in the FRG bankruptcy in Delaware. Those claims alleged breach of the Area Development Agreements and breach of the Franchise Agreements, and they survive the settlement.
In other words, BMH ceded its ability to sue Buddy’s in regular court, but keeps its place in line in the Delaware bankruptcy to potentially recover money as an unsecured creditor.
BMH sent FRG a letter in March 2024 containing allegations relating to its franchise agreement. In September 2025, Buddy’s Franchising and Licensing retaliated by terminating that agreement. In November 2025, Buddy’s filed a lawsuit in Florida state court against 43 Buddy Mac entities, alleging breach of the franchise agreements and federal trademark violations. Specifically, BMH was accused of operating stores in violation of the terms of their franchise deals and improperly using the Buddy’s brand.
Buddy Mac fought back by moving the case to federal court and, when MacDonald filed his bankruptcy declaration, making additional allegations.
“The relief requested in the Motion is fair, equitable, and in the best interests of the Debtors’ estate, their creditors, and other parties in interest,” ruled U.S. Bankruptcy Judge Michelle V. Larson.
The deal is called a mutual release, which wipes the slate clean of every claim, known or unknown, from the beginning of time through the settlement date. The lawsuit is dismissed with prejudice.
BRC Group’s annual report
Finally, BRC Group Holdings conducted its earnings call Tuesday covering the full year 2025, reporting revenues up 56% in the fourth quarter 2025 to $278.4 million from $178.6 million for the same period a year ago. This yielded a net income of $86.8 million.
For the year, the company reported a profit of $307.4 million, or $9.80 per share, on revenue of $967.6 million, capping a remarkable two-year turnaround. Revenue for 2024 was $746 million. Main drivers included investment gains in Babcock & Wilcox stock and, finally, the absence of major loan write-downs connected to FRG.
During the call, Bryant Riley, co-CEO, told analysts that the Delaware Court of Chancery on Monday dismissed a lawsuit against him and other officers at BRC Group that accused them of responsibility for losses connected to the Franchise Group bankruptcy, FRG’s former CEO Brian Kahn and the fraud scheme at Prophecy Asset Management.
BRC Group “believes this outcome reflects the integrity of its board and the governance processes,” Riley said.
The 10-K’s key metrics came in within or above the company’s own estimates issued earlier this year, a sign that management’s navigation of a turbulent period since FRG’s bankruptcy is beginning to steady the ship.
BRC Group divested several businesses, cutting operating expenses by $352 million year-over-year and redeploying proceeds toward debt reduction. Total debt fell by $347 million to $1.4 billion, while net debt dropped $437 million to $627 million. The reductions came through a combination of senior note exchanges, redemptions and term loan paydowns.
A new initiative for the company is BRC Specialty Finance, announced Monday and discussed during the earnings call. Riley described a gap in the market for short-term lending to public companies, a niche where most traditional lenders are too rigid to effectively operate.
On the technology front, co-CEO Tom Kelleher said BRC Group standardized its internal AI usage around Anthropic’s Claude roughly a year ago. More than half of corporate staff are now using AI tools, with adoption accelerating across operating companies under the guidance of a dedicated internal team.
Just prior to releasing its financials, BRC Group canceled 1.3 million publicly traded senior notes across multiple series in exchange for 4.2 million shares of common stock at an average price of $7.09 per share.
Upon closing of the exchange, the company’s outstanding debt will be reduced by approximately $38 million.
“These senior note transactions, combined with continued appreciation in our investment portfolio, have further reduced our net debt position beyond the preliminary estimates communicated for Dec. 31, 2025,” Riley said.
