The ongoing restructuring of Vancouver’s famous hospitality company hit a snag last week when a B.C. Supreme Court judge refused to approve the sale of the Granville Street restaurant.
Judge Shelley C. Fitzpatrick has ruled against Cinema Public House’s lease of restaurant space for new corporate owners, citing uncertain financing and the City of Vancouver’s concerns about the applicant’s lack of industry expertise. refused an order to transfer the property. Become a business buyer.
Cinema, Inc., mentioned throughout the judgment, is one of several companies that make up the Donnelly Group, which collectively owns numerous bars, restaurants and other businesses in Vancouver and elsewhere.
The group rebranded its consumer business as follows: freehouse collectiveThe court decision refers to these companies collectively as the Donnelly Group.
When Donnelly Group filed for creditor protection under the Federal Corporation Creditor Arrangement Act last May, it owed a total of approximately $20 million to various parties.
Most of that sum (more than $13 million) was owed to the Bank of Montreal. court decision According to documents issued last week, Donnelly Group and BMO “have negotiated an amount that must be paid to BMO in reduction of the secured debt, although the actual amount agreed upon has not been disclosed.”
Cinema operates the eponymous Cinema Public House, a restaurant and bar at 901 Granville Street downtown, which it leases from the City of Vancouver.
Months after filing for creditor protection, Donnelly Group put Cinema Public House and three other businesses up for sale, according to a court ruling.
The cinema was the only offer to go this far, with Donnelly Group accepting an offer of $575,000 for the business and all its assets.
When the restaurant was on the market in August, the original asking price was $1.2 million.
The prospective buyer is a numbered company, 1442029 BC Ltd., referred to as “144” in the court ruling. As part of the purchase, 144 will take over Cinema’s real estate lease and will be required to pay the city $25,237.33 per month with nine years remaining, according to the ruling.
One condition of the lease is that the city must approve any attempt to transfer it to another tenant. The city rejected it for a variety of reasons.
Concerns about the buyer’s assets or expertise
According to the court ruling, brokers from the Donnelly Group approached the city in November about assigning the cinema lease to 144.
As part of that exchange, the broker explained that 144 is a “shelved company” that was set up in September 2023 by spouses of directors Amrinderveer Chahal and Apurv Yogeshkumar Modi. .
According to the decision, Mr. Chahal and Mr. Modi work as credit analysts for TD Canada Trust and intend to keep their day jobs if the Cinema acquisition is successful.
“The broker advised that Cinema’s business would not change in any way, in that 144 would continue to operate its bars and restaurants and continue to employ its staff,” the ruling states.
The broker’s presentation was also when the city learned the cinema was operating at “approximately $130,000 to $140,000 in annual losses,” according to the ruling.
Although the broker told the city that the buyers were aware of Cinema’s financial statements and “knew what they were getting into,” the judge said those statements were financially He pointed out that this did not indicate a sound business.
“Petitioners are not suggesting that Cinema is back in the black,” Fitzpatrick’s ruling said.
“In fact, Mr. Ogdon’s Dec. 8, 2023 email to the city states, ‘This year is even worse.'”
The city also expressed concern about 144 and its directors’ lack of experience operating a licensed restaurant or pub, as the space must be maintained according to the terms of the lease.
From 2019 to 2022, Mr. Modi and Mr. Chahal were “respectively the owners and supervisors of a small, unlicensed restaurant called ‘Bombay Street Takka’ in the Edmonton suburbs,” according to the ruling.
The broker and Donnelly Group claimed this as evidence of experience in the restaurant industry, but the city and Fitzpatrick expressed skepticism about its validity.
“Very limited evidence”
In assessing the merits of the proposed lease transfer, the judge repeatedly cited the lack of information regarding 144’s business plan.
Ms Fitzpatrick pointed out that there was no evidence before her of how the numbered companies planned to finance the Cinema acquisition.
There was also no evidence provided about the nature of Mr. Modi and Mr. Chahal’s previous business ventures or how their management experience would translate to running a bar in the heart of Vancouver’s red-light district.
“Faced with the limited information presented to the court, these appear to be two very different types of businesses,” the ruling states.
Mr Fitzpatrick also contrasted 144’s alleged experience with a promise from another Donnelly Group company to provide training to support the transition to new ownership.
“Generally speaking, I agree that training is a positive support and can be beneficial,” the decision reads. “But if these people are so experienced, why do they need training? 144 We can only assume that the cinema staff they purport to maintain are already trained. There is no evidence as to whether or how they are trained. Mr. Modi and Mr. Chahal appear to have full-time day jobs at TD Canada Trust, but have no experience in running the business. Become.”
The judge also noted that although Donnelly Group had significantly more experience than 144, it was still unable to operate the cinema profitably. She lamented the lack of detailed information on the 144’s qualifications and finances.
“The very limited evidence found in the first package sent to the city in late 2023 is, by itself, limited,” the ruling states. “For reasons that are not clear to me, the petitioners may have decided not to seek further support for the proposal from 144, or they may have filed suit with the city and this court. Either they failed to recognize further support.”
Mr. Fitzpatrick concluded that the City was reasonable in objecting to 144 given the lease agreement and declined to exercise his discretion to override the City’s objections.
However, she left the door open for the Donnelly Group to seek further information from 144 in order to address the city’s concerns and reapply to have the lease assigned in the future.
