Wednesday, November 16, 2011

Blacksmith Founder Files for Bankruptcy

Posted By on Wed, Nov 16, 2011 at 3:45 AM

Gavin McMichael, one of Bend’s most prolific and high-profile restaurateurs, has filed for bankruptcy.

It’s not clear what the implications are for McMichael’s remaining restaurant holdings, including his flagship Blacksmith restaurant and the former Marz Bistro, which McMichael rebranded as Gatsby’s Brassiere Bar.

According to court documents, McMichael owes creditors close to $2.5 million.

According to federal bankruptcy documents filed this past week, McMichael is seeking Chapter 7 bankruptcy protection. Under Chapter 7 rules, McMichael would surrender all of his assets to the court's trustee which would divide up the limited spoils among his extensive list of creditors, most of whom have unsecured interest in his businesses, meaning that the only collateral was McMichael’s promise of payment.

However, McMichael, reached Wednesday morning by phone, said that isn't necessarily the case. To the contrary, McMichael said the bankruptcy filing would allow both of his remaining restaurants to remain open by protecting the operations from one of his major creditors, a California investor whom McMichael said had been unwilling to renegotiate the terms of a business loan.

The list of creditors is extensive and McMichael’s filing stretches more than 70 pages. The debts range from minor bills associated with daily operations, including money owed to Eberhard’s Dairy and a local linen company, to substantial debts to his individual investors and financial institutions, including the Banks of Cascades.

One of those investors is James Orsillo, owner of Amalia’s Restaurant downtown. Orsillo invested money with McMichael over the past several months, even as McMichael’s restaurants were struggling to remain open. One of those restaurants, McMichael’s New Orleans-inspired Bourbon Street bistro closed abruptly in October just prior to a scheduled event that it was supposed to host in conjunction with Bend Film.

Orsillo said he loaned and invested thousands of dollars with McMichael with the understanding that they would be opening a joint venture in the former home of the Astro Lounge, which moved several blocks away on Bond earlier this year, and Gatsby’s, which Orsillo planned to convert into an Italian-style restaurant with an adjacent bar, dubbed the Ruby Room, in the former Astro digs. That project never got off the ground. When Orsillo returned from vacation recently, he learned that McMichael was preparing to file for bankruptcy.

McMichael’s bankruptcy filing indicates that Orsillo is owed roughly $313,000. However, both he and McMichael indicated that the actual debt is lower based on a pair of investments that Orsillo made with McMichael in the failed Bourbon Street and the joint venture involving Gatsby's.

At this point, Orsillo is not sure how much, if any, that he’ll recover, but he hasn’t dismissed the idea of pursuing civil or criminal charges. McMichael dismissed the idea of any criminal wrongdoing and said he is working to pay off outstanding debts related to Bourbon Street's closure using his personal funds.

The case bears a resemblance to another high profile bankruptcy filing from a prominent downtown restaurateur, that of Jody Denton who left hundreds of creditors and millions of dollars in debt in his wake when his restaurants Merenda and Deep sunk under the weight of the accumulated debt. However, McMichael cautioned against drawing a comparison. he said the bankruptcy filing allows him to largely square his debts while protecting his partners in the Blacksmith and Gatsby's.

"I filed chapter 7 to protect the interest of the employees and my partners," McMichael said. "I threw myself on my sword which is what I felt like I should do rather than what some of my predecessors have done by leaving town in a puff of smoke."

The court has set a Dec. 20 meeting for creditor's at the National Guard Armory. It’s not clear how much there will be left to go around. According to court documents, McMichael is losing his house to foreclosure and his assets are limited to a few personal possessions, including a 2001 jeep, valued at $2,000 and a monthly salary of $1,500 that is tied to his restaurants.

 

Editor's note: This article has been edited since it was originally published. Due to the personal nature of the commentary on this story, commentary has been disabled.


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