Small suppliers take a big hit as high-end restaurant chain racks up $46 million in debt

When Godspeed brew pub owner Luc Lafontaine decided to sell some of his beer to La Banane, he figured it was a good fit.

An elegant restaurant with a top chef serving classic French food would be an ideal spot to showcase the Belgian-style saison flavoured with Japanese yuzu citrus, or the classic Czech-style lager brewed at his east-end brew pub.

“We thought it would be a good place to have our beer,” said Lafontaine.

Now, as he ponders the $1,139 he’s owed by King Street Food Group, La Banane’s parent company, Lafontaine regrets the decision.

“They haven’t paid us anything since last November. It’s frustrating, but we’re going to have to write this off,” he said.

King Street Food Group secured creditor protection on Nov. 6. As the hospitality company goes through the insolvency process, with eyes on a potential sale of all or part of the firm, Godspeed is just one of many businesses, organizations and individuals owed money.

In documents filed with a court earlier this month, KSF Group said it owes a total of $45.8 million, with $23.4 million in assets. The company which owns a chocolate shop and eight restaurants, including La Banane, high-end steak

house Jacobs, several locations of Buca, and two of celebrity chef Jamie Oliver’s “Jamie’s Italian” restaurants, said between April and September — under COVID-related restrictions — revenue was down 98 per cent from the same period last year.

“The COVID-19 pandemic has led to the KSF Group facing unexpected and staggering financial difficulties,” KSF co-owner Peter Tsebelis said in an affidavit filed in Ontario Superior Court.

Tsebelis also said a planned expansion — eight additional restaurants in the next three years — and underperformance of Jamie’s Italian also hurt the company’s finances.

While the biggest amount on the creditors list is $34,943,688 in secured debt owed to Third Eye Capital Corp., the vast majority of creditors listed by insolvency trustee MNP are smaller businesses or individuals. (The Receiver General of Canada is owed $2.5 million in HST payments).

They range from $700, owed to a Toronto knife sharpener, to hundreds of thousands of dollars owed to several wine agents.

Dozens of meat, produce and other food suppliers are also on the list, including Woodword Meat Purveyors.

A photographer is owed $4,294. A mushroom supplier $97,000. Even highprofile crisis communications company Navigator Ltd. is owed $24,973 (when asked about its appearance on the creditors list, a Navigator source said the company doesn’t comment on client work).

Veteran Toronto restaurateur Arron Barberian, owner of Barberian’s Steakhouse and part owner of a wine import agency, which is owed money by KSF, said he feels for all the small creditors.

Many didn’t want to speak with the Star on the record, because they don’t want to jeopardize their chance of collecting the money they’re owed.

“I’m in this weird position of having to be ‘Yay, Buca’ because the only hope I have of seeing any money out of this is if they can somehow make things work again,” said one.

As unsecured creditors, those smaller businesses and individuals will likely collect pennies on the dollar — if anything — if MNP finds a buyer for some, or all, of KSF, experts say.

“The lion’s share of the proceeds would go to the secured creditor. The unsecured creditors usually don’t get very much,” said Bryan Gelman, managing director of Albert Gelman, a licensed insolvency firm. Gelman says a buyer most likely wouldn’t end up taking the whole company.

“The buyer will maybe look at picking up profitable locations and leaving the unprofitable ones. They could emerge as a smaller company,” said Gelman, adding that any sale would need to meet with the approval of Third Eye Capital, as well as a judge.

Gelman, who isn’t working on the KSF insolvency, said it might seem unfair that a big lender gets the bulk of the proceeds, but says small companies and individuals just don’t have much leverage. “The reality is that a lender who can give a company $33 million in a risky business is rare. A produce supplier or a wine import agent isn’t as rare. So the lender has more leverage,” said Gelman.

Having a restaurant company go into insolvency has a knock-on effect on those small suppliers and their staff, said Steve Bamford, president of the Toronto Wholesale Produce Association.

“It’s depressing. Because you end up paying for food that they sold to someone else, and there’s not really a lot you can do about it,” said Bamford, who has noticed many produce companies that supply restaurants are struggling during COVID.

“Sometimes, the company owner ends up driving the truck because he’s had to let everyone else go,” said Bamford.

It’s easy to focus on a high-profile restaurant or company when it enters insolvency, but there are a lot more businesses and people affected than just the big names, said Ryan Mallough of the Canadian Federation of Independent Business.

“People focus on the restaurant going down, but there’s a whole supply chain that’s affected. There’s the meat supplier, the cheese supplier, the produce guy, the mushroom guy, the electrician. Most of the time, they’ve already done the work, or supplied the product,” said Mallough.