ZenKitchen closes suddenly due to tax arrears

ZenKitchen closes suddenly due to tax arrears

Owner thought he had a deal worked out with revenue agency. Apparently, not. Chef considers bid to take over

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ZenKitchen owner David Loan, left, and executive chef Kyle Mortimer-Proulx. As a result of the restaurant closing, Kyle’s participation in the annual invitational Gold Medal Plates culinary competition in November may be in jeopardy.

MAY 25 14 – 1:45 PM — It was an occasion for ale on a sultry summer afternoon, but definitely not a moment to celebrate.

All rather sad, actually. More like a time to pause, reflect, and to drown sorrows.

IMG_4770 copyJoining me at Deacon Brodie’s pub on Elgin Street, closed to motor traffic Saturday afternoon for Ottawa’s much-heralded Race Weekend, were nice people and long-time friends behind the much acclaimed high-end vegan restaurant, ZenKitchen on Somerset Street in Chinatown, opened July 26 2009 and now closed May 23, 2014.

After almost five years in business, ZenKitchen was shuttered suddenly on Friday after the Canada Revenue Agency got a court order and seized its corporate bank account the previous day for non-payment of HST.

Everyone has to pay taxes, that is not in dispute.

What follows, here, is my sightly edited question-and-newer interview with ZenKitchen owner David Loan, 51, and his executive chef of two years, Kyle Mortimer-Proulx, 29, conducted in the back corner of the downtown pub on a warm weekend afternoon when the rest of the city was out running.

Loan and I go back many years, at least to the early 1990s when he was an alderman’s assistant at Ottawa City Hall. I know him as a sincere and well-intentioned man, and one I am proud to call my friend.

He’s the kind of guy who, pressed for cash, put aside his pocket change at the end of each day to ensure his staff got tips from customers put on their credit cards.

IMG_1042“I literally put every penny I had into this place,” Loan says. “I think CRA closed us down because they were tired of having the file open on their desk.”

Recall ZenKitchen received critical acclaim almost since the day it was opened by Loan and his then-partner, executive chef Caroline Ishii. In fact, the trials and tribulations of opening a new fine dining vegan restaurant were the subject of a 13-episode television show in 2010 called The Restaurant Adventures of Caroline and Dave. (Ishii left the restaurant in April 2013.)

I have known Proulx for considerably less time, and have worked with him at public cooking demonstrations. I’ve always been impressed by his unassuming demeanour, culinary skills and much-deserved acclaim that won him an invitational spot at this autumn’s Gold Medal Plates competition in Ottawa — a competition that, for him, is likely in jeopardy if he loses his home kitchen.

(Recall that chef Michael Radford had to forfeit in 2011 when his employer, Savanna Cafe, closed after 24 years. He has since taken over the kitchen at The Whalesbone and is back in the gold plates competition this November at the Ottawa Convention Centre.)

My chat with them went like this:

Ron Eade: Well, David, that’s pretty shocking news. Is the restaurant closed as of last night (Friday)?

David Loan: The restaurant is closed as of last night. As of lunch, actually.

Eade: What happened?

Loan: We have for some time had a debt to the Canadian Revenue Agency for HST. We have not argued that we owe the money, we know we owe the money. We came to an agreement with them that we would make certain payments and we have made those payments.

They also required us to go from an annual reporting (for tax purposes) to monthly reporting. Which is fine. Except, when they did that in April they made it retroactive to January. That meant, in addition to what we were paying, we suddenly also owed $20,000 up-front, without warning and without having that money.

At that point I said we can’t do that, we don’t have the money. So I had only one remaining opportunity, and I put the restaurant up for sale about three weeks ago.

Eade: How much HST do you owe?

Loan: I really don’t want to get into that detail, I’m sorry. It’s a lot and, again, there’s no argument we owe them the money.

Selling the restaurant was going to be an opportunity to pay the CRA, pay our suppliers, and to keep the restaurant going so the staff would still have jobs. CRA agreed to that plan three weeks ago, but on Thursday CRA seized the bank account.

They got a court order, and told us they would not be unfreezing the account. So they got $4,000 out of those bank accounts.

IMG_3241Eade: Who actually owns ZenKitchen?

Loan: ZenKitchen Inc. is a corporation that owns the restaurant, and I am the sole owner of ZenKitchen Inc.

Eade: What are the ramifications of seizing the bank account?

Loan: Because they froze the bank account, I couldn’t pay staff and that made us close. I couldn’t say to my staff ‘you guys keep working and you’ll get paid eventually.’

Eade: There’s a comment on Twitter that you’ll be open again in a week …

Loan: We had some plans, some interest, that somebody might be interested in reopening the restaurant under a new corporation. I now actually have a couple of people who have expressed interest, but I don’t think it will happen in a week any more. There is a possibility somebody will be taking over, but it’s all up in the air right now.

The thing is, CRA ended up getting a few cents on the dollar, laying off 16 employees, and ensuring that suppliers can’t get paid, instead of taking a chance that we would actually sell it and prevent all those bad things. I feel wretched about that. I am not proud. I am ashamed for not paying our suppliers, that my staff didn’t get their last paycheque.

I will apply to the CRA ombudsman because it’s been suggested to me we may have a good case that they made the wrong decision. But I don’t know what that would result in, I don’t know the process. I’ve talked to a prominent tax lawyer who told me, if you owe the CRA money there’s nothing you can do, you’re at their mercy.

IMG_3240Eade: So, Kyle, what’s your involvement in this? Might you step in as an owner?

Kyle Mortimer-Proulx: This is one possibility. I’ve been discussing that with one of our senior cooks, David Gick, incorporating ourselves and taking the necessary steps to do all the transfers, licensing, and approach the landlord to negotiate a lease, rent and the assets. But that’s not a decision to be taken lightly. We need to look at the books and make sure it’s something we can rebound from and have a profitable business.

It would be a shame to step in for the wrong reasons and end up in a similar fate. So we are exploring the option, David and I. He’s been with me almost two years.

Eade: How much money would you need?

Proulx: That is not yet clear. We have had offers from various people willing to back us.

There are options: We could re-open in the same place with the same name, we could re-open under a different name, or we could go somewhere else depending on how things go with the landlord. In any event, the one-week time frame is not likely; even things like the liquor license transfer could take weeks.

Eade: What makes you think you can make money when David winded up owing CRA and suppliers?

Proulx: We’re in the process of getting a profit and loss statement from the accountant, and the HST is off the table because it will be a different corporation.

Loan: That tax debt stays with me, not with a new business. It’s not erased by any means, it remains with me.

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Eade: Dave, when I bumped into you Wednesday evening as you were heading in to Algonquin College to teach a sommelier class, you had no idea this was coming?

Loan: I didn’t know. The next morning, Thursday, I did my usual financials and tried to transfer some money to pay a bill and it didn’t happen. So I phoned Royal Bank and they said there’s a court order to freeze my account, and I need to call CRA.

Eade: With a court order, wouldn’t you have to appear before a judge?

Loan: You would think, but apparently not. I kind of understand, because if they give you advance warning then you might quickly withdraw all the money. But at the same time, there’s no due process, there’s no opportunity for defence on behalf of the business.

It sure screws us over.

Eade: Business must have been poor if you owe tax money …

IMG_3242 Loan: Business has been very good, but we went through a very slow period last fall and it was during that time we burned through our savings, and those savings were earmarked to pay HST at year-end. That’s where we got screwed … If it were up to me, the HST would go straight from the point-of-sale machine to the government and we’d never even see it. That would be ideal, but that’s not how it’s done.

Eade: Are your suppliers leaning on you?

Loan: They’re unhappy, but there is nowhere to lean. I’ve informed them of the situation, that I can’t write a cheque. We have maybe 25 suppliers, I’m guessing. The sad thing is, we’re a restaurant that has always focused on local, so that means our suppliers are largely small local businesses, small farmers, who have depended on us for revenue. I can think of a couple of farmers who were expecting us to buy their produce for the next six to eight months, and as a result they thought they had a customer in place through summer and fall.

So it’s not just a matter of what we owe them, it’s the revenue stream going forward. It’s horrible, Ron, it’s horrible.

Proulx: For the last two days I’ve just been facilitating a shutdown. I tried to unload whatever produce I had in the fridge so it wouldn’t just go to waste. I got a hold of farmers who delivered in the last couple of days and returned produce to them.

Eade: How are they taking the news?

Proulx: They’re obviously quite upset, but they recognize the situation. I pride myself on my connections with farmers.

Eade: Are you confident if you assume the business under a new corporation, new name, debt-free, that you can make a go of it?

Proulx: Definitely, there’s  great customer base. They come out and support us and, with us gone, they’re going to be left unfulfilled partially. In two years I’ve been at Zen they’ve gotten to know me and the food I put out.

Eade: This could nix your invitation to Gold Medal Plates in November?

Proulx: That’s definitely crossed my mind: You have to have a kitchen. We’ve seen it go both ways, where chef Michael Radford was invited while he was at Savanna Cafe but then had to withdraw when the restaurant closed in 2011. Now he’s at The Whalesbone, and he’s competing this fall. Marysol Foucault closed her Odile restaurant but kept Chez Edgar, and so could continue in Gold Medal Plates last fall.

I have not yet contacted Sue Holloway (at Gold Medal Plates) about that …

Loan: I would hope Sue would at least give Kyle some breathing space to figure this out, then decide after that.

Proulx: The last two days I’ve been at the restaurant trying to figure things out. Some chefs were able to take our produce, and anything after that I dropped off at the Shepherd’s of Good Hope so it wouldn’t go to waste.

Eade: And you informed your staff when?

Loan: To those who were present, at the beginning of lunch Thursday. Kyle then contacted the rest of the kitchen staff and I did front-of-house. Last service was really Wednesday night, but we had a couple of customers at Thursday lunch before we had a chance to made a decision.

Eade: What is the future for David Loan?

Loan: Right now I’m just looking for work, whether it’s back in the political field where I came from. I’m continuing to teach at Algonquin College.

Eade: And you, Kyle?

Proulx: Well, in the immediate future I’m exploring the possibility of this project. I’m currently trying to place all of my cooks and have put out feelers for them at different restaurants. I’ll take a few days now to really look at this project, and later I can get a job in another kitchen. I’ve been offered work as long as I need it.

It’s a close community and people have been reaching out and showing their support right off the bat.

Loan: No matter what happens next, the ZenKitchen I’ve known and loved is done. Any new ZenKitchen that may emerge will necessarily be different.

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Twitter: @roneade
E-mail: ronlorne[at]hotmail[dot]com
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