Meritage Hospitality Group plans to close 41 of its 314 Wendy's restaurants by week's end, and the franchisor is fighting the slate in U.S. Bankruptcy Court, arguing the wrong stores are on the list.

The 41 locations span Oklahoma, Michigan, Georgia, and Florida. Twenty of those closures were set to wrap by Friday. Together, those restaurants produced $4.2 million in negative EBITDA over the trailing twelve months, the company said in filings.

Wendy's last week objected to 10 of the closures on Friday's list and proposed substituting seven different units it says are less damaging to the portfolio. Meritage rejected the counterproposal.

What does Wendy's want changed?

Wendy's argues the 10 stores it flagged to close carry an $11,000 EBITDA advantage per month, collectively, versus the seven units the chain wants shuttered instead. The franchisor has offered to absorb that monthly delta.

"The potential upside for the overall portfolio outweighs this nominal difference," Wendy's said in a court filing.

Meritage's chief restructuring officer, Kevin Cleary, called the timing unworkable: the proposal arrived with two days' notice, and the offer to cover the EBITDA gap is unsecured and would not pay the cost of closing a different store set.

"Wendy's proposal would require [Meritage] keep open stores that are losing more money and to close stores that are losing less," Cleary said. "Every week the debtors keep a deeper-loss store open, the debtors' estates bear that loss. That is the opposite of the purpose of the closure program."

How do the two store lists compare on unit economics?

• Meritage's 41-closure list: average sales of $1.15 million per store; average loss of $127,000 over the last 12 months.
• Wendy's proposed seven: average sales of $1.07 million per store; average loss of $114,000.
• System benchmark: Wendy's restaurants nationally average roughly $2 million in annual sales through 2025.

The seven stores Wendy's wants closed average 17 percent below the closing list on sales but only 10 percent better on losses — a mix that, on the franchisor's math, would lift the portfolio's contribution margin once the deep-loss units continue running.

What's the termination fight about?

The closure dispute sits on top of a separate fight over whether Meritage has any right to run Wendy's units at all. Wendy's asserts its franchise agreements were terminated before the Chapter 11 was filed, and is pressing $147 million in claims, including more than $27 million in unpaid royalties and "liquidated damages" for projected future royalty and marketing-fund payments.

Cleary cited that exposure as another reason to reject the substitution. Accepting Wendy's counterproposal, he argued, would "leave the estate dependent on collecting from a party that asserts approximately $146.9 million in claims against the debtors and is litigating against them."

Wendy's objected to the Chapter 11 filing last month, arguing the operator has "no rights to operate" because the agreements were terminated first. Meritage fired back, calling the termination defective: the notice arrived by email without a physical copy and without notice to the lenders, and Wendy's own short-term lease ask required the operator to keep the stores open.

"Wendy's cannot have it both ways," Meritage said. "The use of magic words in an otherwise deficient email notice sent to gain leverage in ongoing negotiations … somehow provided the debtors with unambiguous notice of the termination of their ongoing rights. It did not."

Meritage labeled the move "a non-termination termination."

How deep does the footprint shrink?

Meritage closed 60 restaurants earlier this year, before the Chapter 11. Add the 41 currently in process and total shutterings top 100, or roughly a third of the operator's 314-unit base. The 17 stores in the active dispute — 10 Meritage wants to close plus the seven Wendy's is pushing to substitute — underperform the system average by nearly $900,000 in annual sales per location.

The next hearing in the case will determine whether the franchisor or the debtor controls the closure map, and whether the $147 million claim stays on the estate's balance sheet as litigation drags on.