House Spirits Distillery: Subchapter V Chapter 11 and $2.7M 363 Sale

House Spirits Distillery, the Portland-based craft distillery that pioneered American single malt whiskey, filed for chapter 11 bankruptcy protection on April 6, 2025. Operating as Westward Whiskey, the company filed under Subchapter V after its relationship with corporate investor Diageo deteriorated and left the distillery without financing options. CEO Thomas Mooney characterized the filing as "a necessary step as we explore financial and strategic alternatives to help our company thrive as an independent craft distiller."

The bankruptcy proceedings that followed included objections. Founder Christian Krogstad and Diageo's investment arm both filed objections challenging the proposed plan of reorganization, disputing asset valuations and alleging that insider financing arrangements would strip existing equity holders of their interests. Despite the litigation, the case moved through the Delaware bankruptcy court. On October 1, 2025, the court approved the sale of substantially all assets to a group of private investors known as Aqua Ardens for approximately $2.7 million. The transaction eliminated Diageo's ownership stake entirely, transitioning Westward to 100% independent ownership with Mooney continuing as CEO.

The House Spirits bankruptcy reflects broader pressures facing mid-sized craft distilleries across America. Financial distress led five spirits distillers to file for chapter 11 in the first half of 2025 alone, as the industry faced post-COVID demand decline, oversupply, and distribution constraints.

Corporate History

House Spirits Distillery emerged during the early days of American craft distilling. Founded in 2004 in Portland, Oregon, the company was one of only approximately 30 craft distilleries operating in the United States at that time. Christian Krogstad, a brewer-turned-distiller, founded the operation to create spirits outside the bourbon and vodka categories that dominated American production.

The distillery first gained national recognition not for whiskey but for gin. Portland's Distillery Row was just emerging, with House Spirits among the early small-batch spirit makers. In 2006, Krogstad collaborated with bartender Ryan Magarian to create Aviation American Gin, a pre-Prohibition-style gin designed for classic cocktails. The partnership was a collaboration between a distiller and a bartender to design a commercial spirit. Aviation became a commercial success, establishing Portland as a craft spirits market and House Spirits as a producer.

House Spirits sold Aviation Gin to Davos Brands in 2016, with co-owners Krogstad, Mooney, and Magarian using the proceeds to expand whiskey production. Ryan Reynolds acquired a stake in Aviation in 2018, and Diageo subsequently acquired the gin brand for up to $610 million in 2020—an initial payment of $335 million plus potential earnouts of $275 million based on sales performance. House Spirits continued to distill Aviation on a contract basis after the 2016 sale.

With Aviation's sale complete, House Spirits pivoted to whiskey. Westward had released its first whiskey in 2012, distinguished by a production approach that combined brewing and distilling traditions: brewed like an American pale ale, fermented with ale yeast, double pot distilled like Scottish single malt, and aged in new American oak like bourbon. By 2015, Westward had become the largest independent distiller of American single malt whiskey in the United States.

The company also worked to establish the American single malt category. In March 2016, House Spirits was among nine distilleries that founded the American Single Malt Whiskey Commission in Chicago. The Commission's mission was to define, protect, and promote the emerging American single malt category both domestically and internationally. That advocacy work culminated in December 2024 when the Alcohol and Tobacco Tax and Trade Bureau officially established "American single malt whisky" as a standard of identity—the first new type of whiskey added to federal regulations in over 52 years.

Westward accumulated accolades throughout this period. The Cask Strength expression won double-gold at the San Francisco World Spirits Competition in 2020, and Whisky Advocate named it one of the world's five best whiskeys in 2022. The Westward Milestone release won Best American Single Malt at the 2023 Whiskey Wash Awards, earning 95 points. By 2024, the distillery had released a Bottled-in-Bond expression at seven years old—the oldest Westward with a verifiable age statement.

Diageo Investment and Path to Bankruptcy

The relationship that contributed to House Spirits' financial distress began in September 2018, when Diageo's Distill Ventures program invested in Westward Whiskey. The investment covered the Portland distillery, the Westward brand, and existing inventory, enabling a nearly 40% capacity expansion in the following year. The founders and existing investors retained majority ownership, and the company was positioned to continue operating independently.

The investment aligned with broader market momentum. The American single malt category had grown 131% between 2014 and 2017, and Westward was a major producer in the category. In March 2025, just before the bankruptcy filing, Diageo announced it would no longer bring any new brands into the Distill Ventures program and would reduce its existing investments. Distill Ventures, Diageo's accelerator program for emerging spirits brands, charged fees of 5% of capital raised in each funding round, and Diageo ultimately acquired 100% of preferred equity interests plus 32.5% of Class A common units.

The company subsequently expanded. Diageo required heavy investment in production capacity, additional hiring, and the lease of substantial warehouse space. The company doubled its workforce during the COVID-era growth period and achieved a tenfold increase in bottling capacity. A $1.5 million expansion plan was executed to meet anticipated demand. Westward's barrel inventory swelled to more than 6,800 casks—enough to support production of over 170,000 nine-liter cases.

When post-COVID demand declined, the company found itself with underutilized capacity and substantial unsold inventory. Industry data showed the $100+ category falling 8.5% year-over-year in 2024, while the $50-$99 tier declined 4.3%. Westward's positioning in the premium American single malt space left it exposed to this contraction.

A distribution agreement negotiated during this period compounded the difficulties. Westward's previous contract with Southern Glazer's Wine & Spirits had expired in 2023, and Diageo encouraged the company to enter a new agreement with the distributor. A Diageo affiliate employee negotiated the terms of the new contract. The CEO later described the final agreement as a "poison pill" because it contained change of control provisions that would make it impossible to raise capital from anyone other than Diageo or sell the company to anyone other than Diageo. The board ultimately signed the agreement based on the expectation that Diageo would eventually incorporate Westward into its portfolio.

When the company needed additional capital, the operating agreement's financing restrictions created what court filings describe as a 90-day trap. The agreement required two consecutive funding requests to Diageo at least 90 days apart before the Debtor could seek alternative financing. In June 2024, Distill Ventures notified the company that Diageo would not provide additional funding. The company formally requested $4 million in October 2024—declined. It requested $13.3 million in January 2025, ninety days later—declined again in February. By the time Diageo's funding right was finally terminated, the company had exhausted its runway and lacked alternatives.

Founder Christian Krogstad had stepped away from the company in November 2022, though he retained his equity stake and his Krogstad Aquavit brand continued to be produced at the Westward distillery. That retained equity stake would later give him standing to file objections in the bankruptcy proceedings. Management worked to reduce costs, cutting monthly cash expenditures from over $1 million to under $300,000. But with Diageo refusing to fund and the distribution agreement blocking alternative paths, the liquidity crisis was not resolved outside of bankruptcy.

Chapter 11 Filing and Contested Proceedings

House Spirits Distillery filed its chapter 11 petition on April 6, 2025, in the United States Bankruptcy Court for the District of Delaware. The case was assigned to Judge Karen B. Owens and designated Case No. 25-10660 (KBO). As a Subchapter V case, the proceedings featured a streamlined structure compared with traditional chapter 11, with Natasha Songonuga appointed as Subchapter V Trustee to oversee the process.

The company's capital structure at filing reflected the Diageo relationship's position. Liquor Investment LLC (Diageo's investment vehicle) held 100% of preferred equity and 32.5% of common units. Secured debt was minimal—approximately $220,000 to KeyBank National Association held in a collateral account, plus a financed insurance policy. Unsecured claims totaled an estimated $1.186 million owed to vendors, contractors, and landlords.

The restructuring relied on debtor-in-possession financing from a group of existing investors: Themiscyra S.A., Endurance Invest Corp., Maria Isabel Leal, and Trillo San Carlos S.A. The initial DIP facility provided up to $1.55 million at 16% annual interest with a $50,000 commitment fee. Luis Fernando Leal—a principal of the entity that would ultimately purchase the assets—had served on Westward's board of directors since 2011 and was one of the distillery's original investors.

The DIP financing drew objections. Christian Krogstad filed an opposition in May 2025, arguing that the Debtor had failed to market the financing opportunity adequately and that the terms were onerous and designed to favor insiders. He alleged the DIP structure was "calculated to provide the DIP Lenders with the equity in the reorganized debtor for $1.5 million," which would strip existing equity holders. Krogstad proposed alternative financing at better terms and noted that the company had received an offer to sell 3,400 casks of whisky for $1.5 million, which he argued would eliminate the need for DIP financing entirely. The court overruled the objection and entered interim approval, later finalizing the DIP order in June 2025 with an authorization of up to $1.55 million.

When the Debtor filed its Plan of Reorganization in July 2025, Krogstad and his Krogstad Aquavit entity filed a preliminary objection challenging confirmation. The objection argued the Plan failed the "best interests test" under Bankruptcy Code Section 1129(a)(7), which requires impaired creditors to receive at least as much as they would in a Chapter 7 liquidation. Krogstad contended the Debtor had failed to create a process to value its assets and was proposing to transfer ownership to the DIP Lenders through conversion of a $1.5 million loan.

Diageo joined the objection. Liquor Investment LLC filed its own objection adopting Krogstad's arguments and raising additional concerns about asset valuation. According to Diageo, the Debtor's own bankruptcy schedules valued assets at over $24 million—$14.45 million attributed to whiskey barrels and $5 million to machinery and equipment. Yet the Plan proposed converting a $1.5 million DIP loan into 100% equity while wiping out existing equity holders and paying creditors approximately 16 cents on the dollar. Diageo characterized this as "not a proper use of subchapter V."

The contested confirmation proceedings threatened to become expensive. The Debtor's counsel warned that an extended discovery and litigation process would generate approximately $820,000 in additional administrative claims between mid-August and early September 2025. With only restricted cash remaining and no available funds to meet September obligations, the company faced the prospect of conversion to Chapter 7 with assets sold at "firesale prices." The DIP facility was subsequently amended to add an additional $500,000, bringing total availability to $2.05 million.

Marketing Process and Sale Outcome

Facing mounting administrative costs and objections that were ongoing, the Debtor pivoted from plan confirmation to a Section 363 asset sale in August 2025. This was not the first attempt to market the business.

Beginning in June 2024—after Diageo indicated it would cease funding—the company began exploring a potential sale. Management contacted several investment bankers, but all declined engagement due to the business's size, operating losses, and market conditions for whiskey assets. CEO Thomas Mooney and his team conducted the marketing process themselves, with some assistance from Diageo. The company and Diageo collectively contacted at least 38 potential buyers and brokers. None expressed interest in discussing a transaction, citing market conditions and what the industry described as excess whiskey inventory.

Only one party made a prepetition offer: Cobblestone Brands, a firm associated with founder Christian Krogstad. The proposal valued 3,400 casks at $1.5 million, or alternatively $360,000 to $540,000 for 800 to 1,200 barrels. The Debtor rejected these offers as they failed to cover production and maturation costs.

For the postpetition sale process, the Debtor retained Cassel Salpeter & Co., LLC as investment banker in August 2025. The firm conducted a marketing campaign, contacting 84 potential bidders including 69 strategic parties and 15 financial sponsors. Forty parties requested non-disclosure agreements, and 19 executed NDAs and received access to a confidential information memorandum and virtual data room. Parties who dropped out cited similar reasons: being too busy, lack of synergies, geographic or industry misalignment, and size mismatch.

Diageo objected to the bidding procedures, arguing they would "chill" participation and were designed to favor the insider DIP Lenders as stalking horse bidder. The Debtor responded that eleven parties had already signed NDAs and accessed the data room, stating that bidding interest remained despite the contested proceedings. The court approved revised bidding procedures in early September with a minimum topping bid of $2.75 million.

When the September 22, 2025 bid deadline arrived, only one qualified bid had been submitted: the DIP Lenders' credit bid through their Aqua Ardens acquisition entity. With no competing bidders, the auction was cancelled and the DIP Lenders were designated the Successful Bidder.

The court approved the sale on October 1, 2025, finding that the consideration was fair and reasonable and that the sale satisfied the "entire fairness" standard. The credit bid was validated under Section 363(k) of the Bankruptcy Code. All assets were sold free and clear of liens, claims, and encumbrances.

The sale structure preserved the business as a going concern. Thomas Mooney remained as CEO. The company transitioned to 100% independent ownership, eliminating Diageo's stake entirely. Remaining employees were offered continued employment with their service years credited for benefits eligibility, though the workforce had contracted from 30 employees at filing to 15 by late October 2025—a 50% reduction. The company's sales increased 53% year-over-year during the first nine months of 2025, surpassing its total 2024 revenue before the year's end.

Industry Context

House Spirits' bankruptcy occurred against the backdrop of distress in the American craft spirits sector. The U.S. spirits industry suffered a 2.8% decline in sales and a 3.2% drop in volume in the first half of 2025, with American whiskey specifically predicted to decrease 6.8% for the year ending June 2025.

Today, Portland's Distillery Row features over 30 distillers and 120+ different spirits—an expansion from when House Spirits was among its pioneers. The contraction represented a reversal. The Distilled Spirits Council reported that spirits volume declined 2% in 2023—the first dip in the category in almost 30 years. That decline continued through 2024 and into 2025. According to industry analysis, the craft spirits sector lost 25% of U.S.-based distilleries in 2024—787 distillery closures in a single year. This represented a reversal from the prior year's 11.5% growth rate. California lost 45% of its distilleries, with all five top states for craft spirits production—California, New York, Pennsylvania, Texas, and Washington—experiencing declines.

Westward was not alone among distilleries facing insolvency. Stoli Group USA filed chapter 11 in November 2024, a case that included the Kentucky Owl bourbon brand. Boston Harbor Distillery filed on March 31, 2025. LMD Holdings, parent of Luca Mariano distillery, entered chapter 11 in July 2025. Garrard County Distilling entered receivership in April 2025, owing $25.89 million to Truist Bank. Additional chapter 11 filings came from McCallum & Sons Whisky Co., Devil's River Distillery, and JJ Pfister Distillery.

Major industry players also reduced operations. Brown-Forman eliminated nearly 700 jobs in January 2025, while Diageo paused production at its Lebanon, Kentucky plant through June 2025. Kentucky bourbon exports fell 14% year-over-year in the first half of 2025—the largest single drop in a decade. Over 14.3 million barrels of bourbon continued aging across Kentucky, representing years of production capacity built on demand projections.

Post-Sale Status

The House Spirits case remained open as of late 2025, with monthly operating reports continuing to be filed and final administrative matters pending. Omnibus hearings were scheduled for January and February 2026. While the sale closed and operations transferred to the new ownership structure, the bankruptcy estate retained certain residual matters requiring court administration.

The restructuring eliminated the constraints that had limited the business under Diageo's investment. The distribution agreement with its change of control provisions no longer bound the company. The financing restrictions that created the 90-day trap were removed with Diageo's equity stake. Under fully independent ownership for the first time since 2018, Westward's management gained flexibility to pursue capital and strategic alternatives independently.

With TTB recognition of American single malt whiskey now in effect, the category Westward helped establish has official regulatory standing. The American Single Malt Whiskey Commission that House Spirits co-founded now counts over 100 member distilleries.

Frequently Asked Questions

What caused House Spirits Distillery to file for bankruptcy?

A primary cause was the deterioration of its relationship with investor Diageo. After Diageo declined to provide additional funding in 2024-2025, operating agreement restrictions prevented the company from seeking alternative financing for 90 days. By the time Diageo's funding right was terminated, the company had exhausted its runway. Post-COVID demand decline and a distribution agreement with restrictive change of control provisions compounded the liquidity crisis.

Who acquired Westward Whiskey?

Aqua Ardens, an entity controlled by the DIP Lenders (Themiscyra S.A., Endurance Invest Corp., Maria Isabel Leal, and Trillo San Carlos S.A.), acquired substantially all assets through a 363 sale on October 1, 2025. Luis Fernando Leal, a principal of the acquiring entity, had served on Westward's board since 2011.

What was the total purchase price?

The total consideration was approximately $2.7 million, consisting of a credit bid of roughly $2.2 million (DIP obligations) plus a $500,000 cash payment for administrative claims.

What happened to Diageo's ownership stake?

Diageo's stake—100% of preferred equity and 32.5% of common units held through Liquor Investment LLC—was eliminated through the 363 sale. Diageo objected to both the bidding procedures and the plan of reorganization, but the court approved the sale to Aqua Ardens.

Why did founder Christian Krogstad object to the bankruptcy proceedings?

Krogstad, who retained an equity stake after departing in November 2022, argued that the DIP financing and plan of reorganization would strip existing equity holders of their interests. He contended the company failed to adequately market assets and proposed alternative financing at better terms. The court overruled his objections.

What was the "90-day trap"?

The operating agreement required two consecutive funding requests to Diageo at least 90 days apart before the company could seek alternative financing. Diageo declined funding in June 2024, October 2024, and February 2025, but the 90-day waiting period consumed time, preventing the company from pursuing other options before its runway was exhausted.

Is Westward Whiskey still operating?

Yes. The 363 sale preserved the business as a going concern. CEO Thomas Mooney continued in his role, and the company transitioned to 100% independent ownership. The workforce was reduced from 30 to 15 employees through the restructuring.

How did sales perform during bankruptcy?

Sales increased 53% year-over-year during the first nine months of 2025, surpassing total 2024 revenue before year's end.

What is the significance of American single malt whiskey recognition?

In December 2024, the TTB officially established "American single malt whisky" as a standard of identity—the first new type of whiskey added to federal regulations in over 52 years. House Spirits co-founded the American Single Malt Whiskey Commission in 2016 to advocate for this recognition.

How does this case fit into broader industry trends?

Five spirits distillers filed for chapter 11 in the first half of 2025 alone. The craft spirits sector lost 25% of U.S.-based distilleries in 2024—787 closures in a single year. Major players including Brown-Forman (700 jobs cut) and Diageo (production pause) also reduced operations as post-COVID demand declined.

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