City of Vancouver blocks Donnelly Group from selling Granville Street restaurant

The Cinema Public House is pictured in downtown Vancouver. The bar and another location owned by Freehouse Collective, formerly known as the Donnelly Group, was listed for sale on Aug. 17, 2023 ( Restaurant Business Broker).

The ongoing restructuring of a well-known Vancouver hospitality company hit a snag last week, when a B.C. Supreme Court judge declined to approve the sale of a restaurant on Granville Street.

Justice Shelley C. Fitzpatrick declined to order the assignment of Cinema Public House Ltd.'s lease of its restaurant space to new corporate owners, citing the City of Vancouver's concerns about uncertain funding and a lack of industry expertise on the part of the would-be buyers of the business.

Cinema, as it is referred to throughout the decision, is one of several companies that make up the Donnelly Group, which collectively own numerous bars, restaurants and other businesses in Vancouver and elsewhere.

While the group has rebranded its public-facing operations as the Freehouse Collective, the court decision refers to the companies collectively as the Donnelly Group. 

When it filed for creditor protection under the federal Companies’ Creditors Arrangement Act last May, the Donnelly Group owed a combined total of roughly $20 million to various parties. 

Most of that total – more than $13 million – was owed to Bank of Montreal. The court decision issued last week indicates that the Donnelly Group and BMO "have negotiated a sum that must be paid to BMO in reduction of its secured debt, although the actual amount agreed upon has not been made public." 

Cinema operates the eponymous Cinema Public House, a restaurant and bar at 901 Granville St. downtown, a location it leases from the City of Vancouver.

A few months after it filed for creditor protection, the Donnelly Group listed Cinema Public House and three other businesses for sale, according to the court decision.

Cinema is the only one for which an offer has advanced this far, with the Donnelly Group accepting an offer of $575,000 for the business and all of its assets.

When the restaurant was listed for sale in August, the initial asking price was $1.2 million. 

The would-be buyer is a numbered company, 1442029 B.C. Ltd., referred to in the court decision as "144." As part of the purchase, the decision indicates, 144 is supposed to assume Cinema's lease on the property, which requires it to pay the city $25,237.33 per month, and has nine years remaining.

One of the terms of the lease is that the city must approve of any attempt to assign it to a different tenant. For a variety of reasons, the city declined to do that.

Concerns about buyers' assets, expertise

According to the court decision, the Donnelly Group's broker approached the city about assigning Cinema's lease to 144 in November.

As part of those communications, the broker explained that 144 was a "shelf company" that had been incorporated in September 2023 by its directors Amrinderveer Chahal and Apurv Yogeshkumar Modi, who are spouses.

Chahal and Modi work as credit analysts for TD Canada Trust and intend to keep their day jobs if their acquisition of Cinema is successful, according to the decision.

"The broker advised that Cinema’s business was not going to change at all, in that 144 was keeping the bar and restaurant open and that it was keeping the staff," the decision reads.

The broker's presentation was also when the city learned that Cinema has been operating with "yearly losses of about $130,000-$140,000," according to the decision.

While the broker told the city the buyers were aware of Cinema's financial statements and "know what they are getting into," the judge noted that those statements do not show a financially healthy business.

"The petitioners do not suggest that Cinema’s operations have returned to profitability," Fitzpatrick's decision reads.

"In fact, Mr. Ogdon’s Dec. 8, 2023, email to the city states that 'this current year is worse.'"

The city also expressed concerns about 144 and its directors' lack of experience operating a licensed restaurant and pub, as the space is required to remain under the terms of the lease.

According to the decision, Modi and Chahal "were the owner and supervisor respectively of a small unlicensed restaurant in suburban Edmonton called 'Bombay Street Tadka'" from 2019 to 2022.

While the broker and the Donnelly Group held this up as evidence of experience in the restaurant industry, the city and Fitzpatrick expressed skepticism about its relevance.

'Very limited evidence'

In assessing the merits of the proposed lease assignment, the judge repeatedly referenced a lack of information about 144's plans for the business.

Fitzpatrick noted that there was no evidence before her about how the numbered company planned to finance its purchase of Cinema.

Nor was there evidence provided about the nature of Modi and Chahal's previous business, or how their experience running it would translate to running a bar in the heart of Vancouver's entertainment district.

"On the face of the limited information before the court, these seem to be two very different types of business," the decision reads.

Fitzpatrick also contrasted 144's purported experience with the promise from another Donnelly Group company to provide training to support the transition to new ownership.

"I agree that, generally speaking, training is a positive support and it can be beneficial," the decision reads. "However, if these people are so experienced, why do they need training? One can only assume that the staff at Cinema, who 144 says it will maintain, have already been trained. In addition, there is no evidence as to if and how Mr. Modi and Ms. Chahal will manage the business, when they appear to have full-time day jobs at TD Canada Trust."

The judge also noted that the Donnelly Group has considerably more experience than 144, and was still not able to run Cinema profitably. She lamented that more information about 144's qualifications and finances had not been provided.

"The very limited evidence found in the original package sent to the city in late 2023 is just that—limited," the decision reads. "For reasons that are not clear to me, the petitioners have either decided not to seek further support for the offer from 144 or have been unable to discern any further support for the offer, as may have advanced to the city and this court."

Fitzpatrick concluded that it was reasonable for the city to object to 144 assuming the lease agreement, and declined to exercise her discretion to override the city objections.

She did leave the door open, however, for the Donnelly Group to seek more information from 144 to address the city's concerns and reapply to assign the lease to them in the future.