Investors seek to block Garces' bankruptcy

Chef Jose Garces,. outside his restaurant, Volver, at the Kimmel Center in Center City.

The earliest backers of celebrity Philadelphia chef Jose Garces —  now his biggest foes —  moved swiftly Thursday to ask a federal court to toss out Garces’ attempt to file for bankruptcy.

The investors filed legal papers Thursday morning saying that Garces signed deals a decade ago stipulating that he had to have the support from at least one of two partners to seek bankruptcy protection — and that he didn’t have it.

But later Thursday, U.S. Bankruptcy Court Judge Jerrold N. Poslusny, who presided over an initial hearing on Garces’ financial affairs that day,  let the status quo prevail — at least for the short term.

He made no immediate ruling on the investors’ bid to shut down the bankruptcy pleading, left Garces in his role as leader of his many restaurants, and set May 21 as the date for the next hearing in the dispute.

Lawyers for Garces noted at Thursday’s hearing, in bankruptcy court in Camden, that prospective diners at his places hold gift cards for future meals worth $1.5 million. Kate Wilhelm, a spokeswoman for Garces, said those cards remain good and will be honored, as will any payments for future catered events.

In their pleading Thursday, investors Jim Sorkin, an owner of a major Philadelphia food  company, and Tom and Maria Spinner, a couple from New Jersey, also asserted that Garces late last month  attempted a maneuver in which he spun off part of his financial share to two other entities — wholly controlled by him — and then sought to marshal all three ventures to outvote the two partners.

Sorkin and the Spinners denounced this as a “sham” without legal merit and called it an attempted end-run around another vote in which they lined up, 2-1, against the chef to forbid any bankruptcy.

Garces filed a bankruptcy petition Wednesday in federal court in a bid to win time to delay paying debts, or to pay less under the protection of federal bankruptcy law, as he gears up to sell his enterprises.

He said that he had a  $5 million deal to sell to Ballard Brands, a Louisiana company owned by three brothers that operates such “fast-casual” retail eateries as PJs Coffee; Wow Cafe: American Grill & Wingery; and the Original City Diner. The diner chain is known for selling a pancake as big as  a pizza.

However, in an additional federal filing Thursday, Garces said another bidder — an unidentified  “large multinational corporation” —  also was interested in a buy.

And at the later hearing, Warren J. Martin Jr., a  lawyer for Garces, said news of his financial troubles had snagged the interest of even more potential buyers, which Martin said raised the possibility of a future auction of Garces assets.  Garces attended the hearing, but left the talking to his lawyers.

The investors, for their part, struck first Monday by filing a suit in Philadelphia Common Pleas Court asking that a judge remove Garces from control and install a receiver to run his restaurants.

In his own fresh pleading with the bankruptcy court,  Garces renewed his rhetorical assault on his old partners, accusing them of pursing a “scorched-earth litigation approach.”  He complained of the investors’ “antics,” saying their lawsuits had caused “extensive damage to the brand.”  Garces said that he had “attempted to throw significant amounts” of the sale proceeds at them, but that they still fought his decisions.

As Garces noted in his filing, the investors have been harsh in their rhetoric, too, complaining that his financial steps resembled a “Ponzi” scheme.

The Spinners and Sorkin provided money to open Amada, the restaurant in Old City that first secured Garces his reputation, and two other places, Tinto and Village Whiskey, that opened a dozen years ago. Garces has gone on to open or manage as many as 30 restaurants, about half of which are still open.

Garces has blamed his financial woes on the shuttering of the Revel casino in Atlanta City — where he operated four places that brought in $13 million a year — and the costly failure of an Amada restaurant in New York City.

In his latest filing, Garces also disclosed new details of his financial predicament, saying his complex enterprise owed $7.5 million to M&T Bank, the Buffalo lender that placed it in default status in late 2016 after deeming the operation’s balance sheet troubling.

The bank  — which has lent the Garces operation $9.5 million — has placed multimillion-dollar liens on Garces’ home and farm to secure its money, putting it in the strongest position among all those owed money.  For their part, it appears that the Spinners and Sorkin are owed a total of about  $3.2 million in investments and extant debts for food bought from Sorkin’s family business.

Garces said his restaurants and massive catering operation took in $39 million last year, but lost $2.6 million.  He said half of the loss was due to onetime expenses associated with reining in his operations.  This year, Garces forecast,  he would take in 15 percent less revenue, but still end up with a profit of $1.4 million.