That’s not how small businesses work. If we’re going to speculate we can list many other scenarios; some which aren’t as accusatory towards the management.

In this case the "management" was theoretically answerable to the "customers" themselves, since it was a private club, but my understanding was that in practice the "board" basically just rubber-stamped whatever the management wanted (very similar to how "shareholders" in big public companies are treated).

There were other reasons to think that the club was in trouble (elderly membership literally dying off, dilapidated facilities, laying off beloved long-time staff, rust-belt economy not minting a ton of new rich people) so my best guess is that it was as simple as that: they needed short-term cashflow to stay in business, so they took it from the waiters and bussers. Either this wasn't enough and they had to close up anyway, or it actually brought the ultimate failure point forward.