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Rebecca Schrage, shown at a 2015 media preview for a food-truck party, is the owner of Schragels Bagels in Hong Kong.Felix Wong/South China Morning Post via Getty Images

When customers arrived at Mendel’s Delicatessen, a café in Hong Kong’s upmarket Kennedy Town neighbourhood, early last month for their morning bagel and coffee, they were surprised to find two large, black-clad men standing out front.

In a video from the scene, as the men blocked the entrance, staff could be heard saying the shop was open, even as another woman told curious passersby, “You don’t want to come here, it’s a situation.”

That situation gripped Hong Kong’s bagel-obsessed expat community, and turned the woman at the heart of it, Rebecca Schrage, into something like public enemy No. 1. Her story shows the dangers of letting a private business dispute play out in public, and how hard it can be to control a narrative once it has run away from you.

In an Instagram post on June 11, following several days of disruptions, Mendel’s said, “Security has been hired by another party to verbally and physically prevent guests and the Mendel’s team from entering the premise, and create crippling disruption such as turning off the main power.”

While Mendel’s did not name Ms. Schrage, she was easily identifiable in videos posted online. With little information available, people soon took to social media with their own theories, many accusing Ms. Schrage of trying to shut down a competitor for her Schragels Bagels business.

As Mendel’s continued to post videos and allegations – saying staff were subject to aggressive harassment by hired thugs – Schragels’ social-media accounts were overwhelmed by trolling and negative comments. By June 13, when Mendel’s posted a video of police saying the guards had no right to stop the restaurant operating, its staff had become the plucky heroes of Hong Kong’s restaurant scene, and Ms. Schrage the villain.

Two days later, when the restaurant reopened after a brief closing, customers flocked to Kennedy Town to show their support. Around the same time, people review-bombed Schragels online, driving its star rating down on Google, and a local food publication removed the restaurant from its list of best bagel joints in the city.

Mendel’s Delicatessen and Schragels Bagels, as seen on June 22. James Griffiths/The Globe and Mail

Throughout this drama, which inevitably became known as “BagelGate,” there were whisperings of a more complicated backstory.

A former banker of Hong Kong and American parentage, Ms. Schrage is well-known on the city’s food scene. Schragels attracted widespread media coverage after it opened in 2014, including from CNN and The New York Times. Scion of a family that ran Jewish delis in New York in the 1950s and ‘60s, Ms. Schrage moonlighted as a bagel-maker while working in finance before switching to baking full time as the business took off.

In mid-2021, she wanted to expand her business from just bagels and open a deli similar to those run by her grandparents. She decided to name it after her father, Michael Mendel Schrage.

According to court documents, Ms. Schrage approached James Wilson, an Australian restaurateur she had known for eight years, about setting up a company together. Mr. Wilson connected her with one of his business partners, Michael Watt, co-owner of Shady Acres, a popular bar.

The three of them agreed to found a new company, Joy Lox Club Ltd., in which Ms. Schrage would be the majority shareholder, alongside Mr. Wilson’s and Mr. Watt’s company Jones Crusher Ltd. Ms. Schrage and Mr. Watt were listed as directors of the new company, and the partners agreed to collectively advance HK$800,000 (around $132,000) for initial costs. On July 9, 2021, they leased a storefront in Kennedy Town for the new Mendel’s Delicatessen.

By September, it was clear the estimate for setup costs was too low, and Mr. Wilson and Mr. Watt suggested putting more money into the business, for a total of HK$1.8-million. In a statement issued after the scandal broke out, Ms. Schrage said when she asked for evidence to justify the increase, she was told “the accounts are unavailable and the supporting documents ‘… were thrown away.’”

She did not put up any additional money. According to a lawsuit later filed against her, Ms. Schrage paid HK$232,000, while Jones Crusher contributed more than HK$1.3-million, toward getting Mendel’s ready for its planned launch in February, 2022.

By then, the relationship had completely broken down. Ms. Schrage no longer trusted her partners, and just before Mendel’s was due to open, she took down the restaurant’s food and liquor licences, putting back its launch by two months.

Mendel’s was finally able to open in mid-April, but toward the end of that month, Ms. Schrage allegedly transferred the total balance in the company’s bank account to a third party for “safe keeping,” and then convened a meeting without Mr. Watt to remove him as the only other director.

On May 30, Jones Crusher sued Ms. Schrage for misrepresentation and breach of contract.

Ms. Schrage escalated in turn. She called the police and said the deli was operating illegally – no action was taken – and then sent staff to shut it down, dismissing employees, blocking deliveries and turning off the power, according to a second lawsuit filed on June 9.

According to Ms. Schrage, sales generated at Mendel’s appeared to be “being diverted into other businesses that I am not a part of.”

“This is why there was a need for security on the premises,” she said. “It seemed appropriate to take steps to protect the business, my concept and prevent any potential illegal activities.” Her actions, including removing Mr. Watt as director, were done on “my authority as majority shareholder,” Ms. Schrage said.

In its lawsuit, Jones Crusher said that as shares were to be distributed on a pro-rata basis and Ms. Schrage had not paid up, she was not lawfully the majority shareholder. Moreover, it said, her dismissal of Mr. Watt was contrary to the Joy Lox Club’s articles of association, which required a quorum of at least two directors to take any such action.

Ms. Schrage’s statement on June 15, almost five days after the scandal first blew up, did little to turn the tide on social media, while the Mendel’s Instagram account, operated by an associate of Mr. Watt’s, continued to gleefully repost messages of support from the public, along with a countdown to the eventual court case, due to be heard in August.

They signed off, “peace, love and Mendel’s.”

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