Financial troubles led to closure of Jack’s

Posted on 06 Jul 2011 at 9:28am

Jack’s Backyard owner Kathy Jack has not returned calls from Dallas Voice about the venue’s abrupt closing 10 days ago. But Marla Custard, one of the property owners, alerted us to some of the details behind the closure.

According to court records, Jack filed for Chapter 11 bankruptcy on Dec. 16, 2010, for the business, Jack Out of the Box LLC. Documents show the business owed hundreds of thousands of dollars to investors including Custard, as well as the IRS, the state comptroller’s office and the Texas Alcoholic Beverage Commission.

Considering that business seemed to be good at Jack’s Backyard, Custard said she’s still unclear about why the bills weren’t being paid.

Days before the club’s final Sunday on June 26, a judge dismissed the bankruptcy filing, saying the numbers didn’t add up in Jack’s plan to get out of the debt.

“That’s when it became clear Jack’s Backyard would have to close,” Custard said. Custard is one of about 15 people listed as creditors who invested in the venue, including recognizable names in the LGBT community such as Howard Okon, Laura McFerrin and Matt Miller.

Custard said she’s personally out more than $600,000, between her investment in the bar and loss of rent payments.

“We love this place,” Custard said. “I’m so mad at her [Jack] for this. It’s heartbreaking, but at the end of the day, it all rests in Kathy’s lap.”

The landowners are now looking for a new tenant.

In an email to the Dallas Voice, Custard forwarded documents from the case and gave us her breakdown of the events that transpired before the closing. Read a portion of her email after the jump.

There are two bankruptcies – Jack Out of the Box (JOB) filed for Chapter 11 on 12/16/10. The US Trustee’s office and the State Comptroller each filed their Motion to Dismiss on 4-29-11. The Motion does not prevent the Debtor from filing a Plan of reorganization of the business and repayment to creditors. A Plan was filed. The hearing on the Motion to Dismiss was set for and held on June 23rd at 1:15. The feasibility analysis generated by the court shows Jacks could not repay its debts in the plan proposed. The Chapter 11 case was formally dismissed by the court and legal protections that are afforded the debtor against its creditors under Chapter 11 are removed. Jacks owes $90,000 in unpaid back rent, $40,000 owed to the IRS, $11,000 to TABC, $40,000 to TX Comptroller, and 15 individual creditors who have received no payments toward their financial loans to Jacks. And yet sales were approximately $1.2 million?

The second entity, Jacks Chill Grill, filed for Chapter 11 bankruptcy in late April. It is my understanding that it is expected that this case will also be dismissed. The Motion to Dismiss was filed 6/29/11. The Chill Grill entity holds the TABC license and thus the debt owed to TABC is attached to this LLC. Taxes had continued to go unpaid for several months “post-petition”, meaning after Dec 16th filing. A debtor must meet certain financial obligations post-petition such as staying current with payment on taxes and rent in order to sustain the Chapter 11 protection privileges provided to the debtor.

The court terminated her Chapter 11 status on Thursday and I offered to let her stay and operate through the weekend to sell her liquor and food inventory and make some cash before closing the doors. I and my partner found the property in 2008, designed it, financed a large portion and invited her to be the operator. I have had every reason to hope she would succeed.

It is an egregious misrepresentation by Kathy Jack to depict herself as having anything less than full accountability for the closing of Jacks Backyard.

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