NEW YORK--Barneys Inc. on Friday closed Mad.61, the restaurant in its Madison Avenue store, but plans to reopen it under new management shortly after Labor Day.
The shutdown stemmed from disagreements between Barneys and the restaurant's manager, Circle Management Ltd., that caused 110 restaurant employee paychecks to bounce last week. The restaurant, opened in September 1993, is 75 percent owned by Barneys and 25 percent by Circle.
Circle, owned by restaurateur Pino Luongo, claims Barney's began withholding required payments to the restaurant in July, causing an overdraft on Circle's bank account. According to Luongo, Barneys collects the restaurant's revenues and is obligated to fund expenses such as payroll, vendor payments and taxes.
Barneys, which has been in bankruptcy proceedings since January 10, charged that it has met its financial obligations, and blamed Luongo's firm for the missed paychecks. Barneys also said Friday it tried in early August to end its relationship with Circle, claiming that normal auditing procedures revealed Luongo had been withholding cash receipts.
Nonetheless, Barneys said it is currently reimbursing outstanding paychecks, but stressed it is under no obligation to employees of Circle. Barneys said that over the last two days, it has cashed more than 200 paychecks of Circle employees.
A Barneys spokesman said the firm is negotiating with several management teams to take over the restaurant. Renovations slated for late September will be done earlier than originally planned, he said.
Luongo said the staff at Mad.61 will be relocated to his other restaurants and that Circle "would use whatever legal means we have available in bankruptcy court" to resolve its dispute with Barneys.
However, Barneys said that despite Circle's assurances, it had heard that many Mad.61 employees have not been given further employment by Luongo.
"The management of Barneys New York regrets that Mr. Luongo's employees have been caught in the middle of an unfortunate dispute between former business partners," Barney's statement said. A Circle spokeswoman said this was not true, and that Mad.61 employees have been offered employment at Luongo's other restaurants, which in New York include Le Madri, Coco Pazzo, Coco Pazzo Teatro and Il Toscanaccio.
Luongo also claims that Circle has not yet received $200,000 in pre-petition payments approved by bankruptcy court in early January. Barneys owes Circle about $534,000, according to bankruptcy papers.
"It is absolutely irresponsible for a bankrupt entity to shut down a $7 million a year operation with no business justification. You don't care about employees by putting them out of work," Luongo said Friday in a statement.
Luongo also said he owns the name Mad.61. Barney's disputes that claim.

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