Creditors of Roscoe’s House of Chicken ’n Waffles might be headed to the deep fryer after the iconic L.A. soul food restaurant’s Chapter 11 bankruptcy filing in late March.

Roscoe’s’ parent company, Hollywood-based East Coast Foods Inc., claims assets of $4.5 million – $3.5 million of which is categorized as “intellectual property” related to the Roscoe’s brand – and liabilities of more than $15 million. But East Coast Foods and its president, Roscoe’s founder Herbert Hudson, are tied closely – if not inextricably – to at least three of the largest of its creditors.

Three entities Hudson also controls – Waffle Plaza Properties Inc. in downtown Los Angeles, Shoreline Foods Inc. in Long Beach, and Inglewood’s Freeway Foods Inc. – are owed $4.25 million, nearly one-third of the liability pot, according to court documents. Apart from their registration with the state, no information is available about the three companies. It’s also unclear from the filings what the debt Roscoe’s incurred from them is or how it was used.

The goal of any Chapter 11 bankruptcy is to reorganize debt and replace a company’s current obligations with new ones in an agreement negotiated with creditors and approved by a bankruptcy judge. But doubts emerge when creditors have ties to the debtor.

“Bankruptcy courts don’t like it when companies breach their fiduciary duty by giving preference to inside creditors,” said Steven Polard, a bankruptcy attorney at Davis Wright Tremaine in downtown Los Angeles who’s not involved with the Roscoe’s case. “It’s serious business and will be attacked as bad acts by other creditors and could lead to a trustee being appointed.”

East Coast Foods’ Glendale bankruptcy attorney, Vahe Khodzhayan, had little to say about the situation.

“As far as commenting outside of the courtroom, it can do nothing but harm,” he said.

Multiple calls and emails requesting comment from Roscoe’s, Hudson, and representatives of the three Hudson-run creditors were not returned. It’s too early to say how the bankruptcy proceedings could impact the chain of seven local restaurants over the long term, but a judge has approved stopgap measures to pay employees and keep the lights on for now, including extending the company’s line of credit at Wilshire Bank.

Bias – and mystery

Given the opaque nature of the filing, it’s hard to tell what drove the chain into reorganization, though a recent judgment against the restaurant might offer a clue.

Los Angeles Superior Court Judge Steven Kleifield awarded $3.2 million, including attorneys’ fees, in October to former Roscoe’s employee Daniel Beasley, who had sued for racial discrimination and sexual harassment. The judgment is listed in the bankruptcy filing among the debts owed by East Coast Foods.

Beasley had claimed black employees at the black-owned business were given less desirable shifts and called lazy by management. His suit was followed by another on behalf of several Roscoe’s employees, filed in February, that makes similar discrimination and harassment claims.

Raymond Aver, a West L.A. attorney representing Beasley, said he is concerned about whether debt held by Waffle Plaza Properties, Shoreline Foods, and Freeway Foods are legitimate business debts.

“One thing our client will look at is the bona fides of these debts to inside creditors,” Aver said. “Bankruptcy proceedings are a blessing and a curse for debtors, in that even if you try and hide things your books are opened and creditors can go in there and shed light on many issues.”

Roscoe’s largest creditor is Clifton Capital Group, an apparently unaffiliated business that is owed more than $4 million. Clifton does not seem to be tied to Hudson in the same way as the other three large creditors, and its relationship with Roscoe’s is a mystery. What the company does and how Roscoe’s came to owe it millions are unknown; the description of the debt is left blank on bankruptcy forms.

State records show Clifton is registered to a “G Kingsbury,” its business address listed is a post office box in La Cañada-Flintridge. Kingsbury’s address as the agent of service is listed just southeast of downtown Los Angeles at a building occupied by sewing machine supplier Cut & Sew. Cut & Sew’s agent of service is a Glenda Kingsbury, who, according to her LinkedIn profile, is a partner at TeamWorkSales Inc., another sewing machine supplier.

Kingsbury was not present during a visit to Cut & Sew last week.

Responding to multiple requests for an interview, she wrote in an email, “I have been informed that you have attempted to contact me regarding a story. Please be informed that our policy is to not comment on pending matters of any nature.”

Broken wings

Hudson opened the first Roscoe’s in Hollywood in 1975 and attracted hordes of devoted fans thanks to the novel − but winning − chicken and waffle combination. With the success of the Gower Street flagship in Hollywood, Hudson opened six more restaurants across Southern California, from Anaheim to Pasadena.

The expansion was not without its own controversy.

A brief foray into the world of franchising ended when the company’s only franchisee entered into Chapter 7 liquidation proceedings in 2002. Attorneys for the franchisee’s parent company, Professional Business Network Inc., said at the time that their clients were undermined by Roscoe’s.

That setback came as the menu became a regional hit, its offerings copied everywhere from food trucks to Michelin-rated establishments. Presidents Barack Obama and Bill Clinton have both dined at Roscoe’s locations in Los Angeles, and photos of celebrities adorn every locations’ walls. Hudson used the restaurant’s cachet to start his own line of energy drinks, Pit Bull Energy, in 2002 through his company Hip Hop Beverage Corp.

But the food mogul is also notoriously media shy, and has shrouded Roscoe’s ownership structure in an almost impenetrable web of corporate holdings.

At least 14 companies, some now defunct, can be traced to Hudson or agents operating on his behalf. In explaining, in part, an award of high attorneys’ fees to the plaintiffs in a copyright infringement case against Roscoe’s over royalties due for music played at a lounge connected to its Long Beach location, a panel of federal appellate court judges in Pasadena cited “Hudson’s obfuscation of the corporate structure of Roscoe’s.”

The copyright case, which ended in 2012, was a prelude to the larger legal problems for Hudson and his companies that have come to a head in the past year.

In court papers, Hudson has laid some of the blame for his legal troubles at the feet of his former attorney, Edward Siegler, against whom he filed a malpractice suit in Los Angeles Superior Court in August. The suit points to four instances where Hudson claims the West L.A.-based Siegler failed to represent his and his companies’ interests in a series of transactions and legal disputes.

Siegler did not respond to a request for comment on the latest imbroglio.

Plan questioned

In addition to his concerns regarding some of Roscoe’s creditors, Aver, the attorney representing the former employee in the discrimination case, raised questions about the business plan submitted to the court by Hudson and his East Coast Foods to secure short-term capital to operate the restaurants.

“It’s very nebulous and … completely lacking in any sort of necessary detail,” he said.

Despite the intrigue, lawyers said some plan to salvage the Roscoe’s empire is likely to be approved.

“Bankruptcy court has a very practical streak to it,” said Davis Wright’s Polard. “If the deal that insiders come up with is good enough, the creditors committee can go along with it.”