Lender, landlord, city oppose Fate motion to assume lease on building

BOULDER — Fate Brewing Co. faces a forbidding array of opponents in its bankruptcy-court motion to assume the lease on its current location at 1600 38th St.: its lender, the city of Boulder and its own landlord, each of whom doubts the brewer’s ability to fulfill terms of the lease.

Fate — through Fate Restaurants LLC — filed for Chapter 11 bankruptcy protection, Nov. 1, 2018. The company has been struggling to continue operations in the meantime, even licensing its trade name to an Arizona rival for $20,000 earlier this month.

Debtors in bankruptcy court, with the approval of the court, may assume or reject contracts or leases in effect while in bankruptcy, and Fate on April 15 filed a motion seeking approval in U.S. Bankruptcy Court in Denver to assume the lease for its brewpub location.

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“The Lease is critical to the Debtor’s ongoing business operations and to its ability to reorganize under Chapter 11,” the company said in its filing. “The Debtor is currently in default under the terms of the Lease.
“The Debtor requests that the Court authorize it to assume its Lease with its Landlord. As required by the Bankruptcy Code, the Debtor will promptly cure the default under the Lease and will provide its Landlord with adequate assurance of future performance.”

But if a debtor has defaulted on a contract or unexpired lease, the bankruptcy-court trustee must provide “adequate assurance of future performance under such contract or lease.”

Three creditors — Independent Bank, the city of Boulder and 1600 38th St. LLC — doubt that Fate can follow through and have filed objections to Fate assuming the lease:

Independent Bank, as successor in interest to Guaranty Bank and Trust Co., a secured creditor that is owed almost $1.35 million by Fate, filed its objection Friday. The objection referenced Fate’s monthly reports of operations, which show that Fate has lost a total of $100,000 over five months, including losses for three of the most-recent months.

Fate recorded profits of $9,554 in November and $14,710 in December. But the company lost $68,719 in January, $47,686 in February and $8,079 in March, according to bankruptcy-court filings.

“First, Debtor has failed to provide adequate assurance of future performance under the terms of the Lease … . Second, because Debtor has continued to operate at a loss during the pendency of this case — as evidenced by the Monthly Operating Reports — if Debtor assumes the Lease, Debtor will then likely breach the Lease, thereby burdening the estate with a substantial administrative claim in favor of the Landlord for the damages resulting from the breach,” Independent Bank’s objection states.

1600 38th St. LLC, Fate’s landlord, which is owed $111,528 in pre-petition rents, plus rents and other fees since the bankruptcy filing, filed its objection Friday.

“Since the commencement of this case, Debtor has failed to meet its obligations … with respect to the payment of post-petition lease obligations,” the landlord stated. “Debtor has failed to pay the monthly installments of rent and other charges by the first of the month; has failed to pay the full monthly installments; and, has failed to insure [sic] that it had sufficient funds in its operating account to pay the checks it did deliver to Landlord causing its checks to be dishonored on several occasions.”

The landlord states that as of the time of the bankruptcy filing in November, Fate had been behind on rent since January 2017 and was about to face eviction when it filed for bankruptcy protection.

“There is little likelihood that Debtor has the ability to promptly cure the pre- petition default or provide adequate assurance that it can meet its lease obligations,” the landlord said.

The city of Boulder, which is owed more than $48,344 as of Feb. 28, 2019, including $33,560 in pre-petition sales-and-use taxes, and $14,783 in sales-and-use taxes for January and February 2019, filed its objection Monday. The above figures do not include sales-and-use taxes for March, which had not been paid as of April 29, when the city filed its objection.

“The City has the same concerns as Independent Bank and 1600 28th Street, LLC, namely (a) the Debtor’s inability to perform such lease; and (b) in the event of default significant administrative costs to the estate,” the city’s filing states.

Fate’s attorney, Jeffrey Weinman, an attorney with Weinman & Associates PC, did not respond for comment by publication deadline.