Aspen Kitchen bankruptcy reveals power struggle

Rick Carroll
The Aspen Times
File photo
C2 Photography/courtesy photo |

A group of investors in Aspen Kitchen has taken legal steps to dismiss its bankruptcy on the grounds that it was filed without their consent and reflects a power struggle in the company’s ownership structure.

Separate motions were filed Thursday by AH DB Kitchen Aspen Investors and Hanford Holdings, both of which claim to have membership interests in Rocky Aspen LLC, the parent of Aspen Kitchen and Rec Room Aspen, the basement-level nightclub.

Rocky Aspen, meanwhile, filed court documents the same day defending the bankruptcy and alleging that AH DB Kitchen Aspen Investors violated the operating agreement for the business and, by doing so, lost having a say in the Chapter 11 filing. Rocky Aspen also claims that Hanford had no membership in the LLC when it declared bankruptcy and, likewise, also had no clout in the decision.

Both the high-end restaurant and ’70s-style nightclub, to much hype and press, opened in developer Mark Hunt’s 204 S. Galena St. building in December, following a series of financial setbacks and litigation that delayed the launch for more than one year.

Was bankruptcy legit?

On March 11, Rocky Aspen filed for Chapter 11 bankruptcy protection in Denver, listing its debts between $1 million and $10 million. The restaurant and nightclub have remained open since the bankruptcy was declared.

In their motions to dismiss the bankruptcy, both AH DB Kitchen Aspen Investors and Hanford allege that Rocky Aspen had no legal authority to file for bankruptcy. That’s because, their motions argue, Rocky Aspen didn’t obtain the consent of AH DB Kitchen Aspen Investors and Hanford. Both claim to have a voting interest in Rocky Aspen’s corporate structure.

AH DB Kitchen Aspen Investors claims it arranged or provided more than $9 million in capital for the construction of Aspen Kitchen, while Hanford says it gave a $3.2 million bridge loan to Rocky Aspen in July. While they are the financial supporters in Rocky Aspen LLC, the restaurant and bar’s operations are handled by a third member, Rocky Aspen Management 204.

AH DB Kitchen Aspen Investors’ motion also asserts that Aspen Kitchen is a “profitable and very valuable enterprise” that had no business going bankupt.

Additionally, the motion alleges the bankruptcy is a culmination of a “tumultuous management and ownership dispute” that belongs in a forum other than the bankruptcy court.

“This Chapter 11 is just another ploy on the scheme of (Rocky Aspen Management 204) to take control of the Aspen Kitchen enterprise 100 percent for itself and the case should be dismissed,” AH DB Kitchen Aspen’s motion says.

Also included is an affidavit of Patrick McGrath, a co-manager of Rocky Aspen who was ousted in January. In the affidavit, McGrath says both the restaurant and nightclub are “highly successful” and are “not insolvent or in need of bankruptcy protection.” Rather, the bankruptcy was filed to wrest full control of the business from AH DB Kitchen Aspen Investors and Hanford Holdings, he said.

Rocky Aspen defends Chapter 11

For its part, Rocky Aspen claims AH DB Kitchen Aspen Investors didn’t live up to its operating agreement by not ordering seating furniture for the restaurant’s dining room and not meeting the revised opening date of Nov. 15, 2015, for the restaurant and for McGrath’s failure to respond to company emails about the construction status. AH DB Kitchen Aspen Investors also failed to meet an earlier opening of March 15, 2015, and went over budget by $1.4 million, Rocky Aspen claims.

At the time of its bankruptcy, Rocky Aspen issued a statement saying that the reason behind the Chapter 11 was to “financially restructure its business,” adding that “the properties will remain open and it will be business as usual while Rocky Aspen LLC implements a financial plan that will ensure stability into the future.”

As of the filing, the restaurant and nightclub had 77 employees.

Among Rocky Aspen’s local creditors are EBC Support ($14,760), Empire Drywall ($15,000), Lassiter Electric ($113,170), Marquez Maintenance ($20,187.50), Specialized Protective Services ($16,905), Summit Construction ($308,983) and Z Group Architects ($33,320).

Denver attorney David Miller, who is representing Rocky Aspen in its Chapter 11 case, did not return a telephone message seeking comment Monday.