Maui Mall IHOP files for bankruptcy protection | News, Sports, Jobs

KAHULUI – The owner of the International House of Pancakes in Maui Mall has filed for bankruptcy protection to restructure state and federal tax liabilities as high as $550,000 to $600,000.

Ernesto “Ernie” Abarro, a part-time Maui resident, filed for Chapter 11 protection in U.S. Bankruptcy Court in Honolulu last week to keep the popular restaurant running.

Abarro’s company HOP 1 Enterprises Inc. operates the restaurant that employs 58 people and generated $3.6 million in sales last year. The company plans to reorganize its debts and continue operations “uninterrupted,” using cash flow to pay off debtors over five years.

“There are no plans to lay off employees, and we hope for the success of the company and to repay everyone in full,” said Chris Muzzi, an Oahu bankruptcy lawyer representing Abarro, on Wednesday.

Attempts to reach Abarro were unsuccessful.

The company reported owing $1.3 million to creditors whose claims are not secured by company assets. The company estimated its assets are worth between $100,000 to $500,000, according to court documents.

The company’s biggest creditor is General Electric Capital Corp., with a $590,089 claim.

While the company is filing for bankruptcy, Muzzi said the “business is doing well” and is generating “sufficient cash flow” to pay back the creditors. The most significant debt and reason for the bankruptcy protection is the result of taxes owed to the state Department of Taxation, the Internal Revenue Service and the state Department of Labor and Industrial Relations.

“When the IRS and state want their money now, they can levy their bank amount,” Muzzi said. “But if they take all your money, or a significant chunk, at one time, you might not be able to pay your other bills.”

Muzzi added that by filing for bankruptcy protection, the state and federal governments cannot collect taxes immediately, and the action gives Abarro “some breathing room” to propose a plan and pay the outstanding amount over a 60-month period.

The approximately 39 full-time and 19 part-time workers will be paid “in order to minimize the personal hardship” and “maintain morale during this critical time,” according to the filing. Among the employees listed to be paid is double-murder suspect Keoni Vinuya Tomas.

HOP 1, incorporated in 2008, purchased IHOP from previous owners Rennie and James West – parents of American Idol contestant Camile Velasco.

The company secured a $1.3 million loan from General Electric Capital Corp. and granted the corporation a blanket lien on all its assets including its lease at Maui Mall, according to a written declaration filed by Abarro on April 1. The corporation claims the assets also were pledged to secure a loan held by another Abarro company, which owned Subway restaurants on Maui.

At some point, Abarro defaulted on his Subway business loan and the corporation filed a lawsuit to recover assets, according to the filing. The corporation has accelerated repayment on both loans, and Abarro states in his filing that it “creates a significant risk” to IHOP operations, in addition to the tax liabilities.

“In order to minimize any loss of value to their businesses, the debtor’s immediate objective is to engage in business as usual . . . with as little interruption to the debtor’s operations as possible,” Abarro said in the filing.

The bankruptcy filing came as a “shock” to some workers Wednesday afternoon as they tended to a bustling lunch crowd. Customers were equally stunned and asked if the restaurant would be closing.

“Oh God, please don’t leave us with Denny’s,” Pukalani resident Joann Dicenzo said.

Dicenzo, who was heading into the restaurant with her daughter, Jamie, said she enjoys the restaurant’s Philly cheesesteak sandwich. Her daughter, who favors the breakfast sampler, said they dine at IHOP several times a month and celebrated Mother’s Day last year at the eatery.

On the way out Wednesday afternoon was Makawao resident Jim Garcia and his wife, Lynn, who spoke highly of the friendly staff. They said they were on their second trip this month and called their waitress “lovely” and “very, very nice.”

“You feel very comfortable,” Lynn Garcia said. “The staff is ‘old style Maui.’ So much of Maui has changed so it’s hard to find an old-style place like this.”

Restaurant manager Mel Akamine could not comment on the bankruptcy and forwarded all questions to Abarro. However, he said the business is doing well and that Abarro is planning to open another eatery directly across IHOP.

Max’s Restaurant, a Filipino food eatery that specializes in comfort food, plans to open in July or August next to Great Styles and Cuts in Maui Mall. The restaurant chain is accepting applications and has locations in California, New Jersey and on Oahu.

Abarro splits his time between Maui and California and owns several restaurants in Hawaii and on the Mainland. He owns a Del Taco franchise in California and a Fatburger on Oahu.

Abarro also opened a Fatburger in the Pukalani Terrace Center, but it closed in September after only two years of operation. On the reason for its closing, Muzzi pointed to talks with Abarro, saying that “restauranteering on Maui is a pretty difficult business because of all the costs involved and it wasn’t successful.”

* Chris Sugidono can be reached at csugidono@mauinews.com.

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