Our summaries of recent Canadian insolvency filings.
September 15, 2020
PharmHouse Inc., a licensed cannabis producer with an operating facility in Staples, Ontario, obtained protection under the CCAA on September 15, listing approximately $170.9 million in liabilities and $187.7 million in assets. Since August, the company has relied on $1.2 million in funding from Canopy Rivers Corporation ("Rivers") to meet its immediate cash needs. In order to establish its operating facility, increase its cannabis production capabilities, and grow its business, the company has expended significant resources to date, including funds from equity and debt financing. As a result, the company has now exhausted its cash on hand, including its $90.0 million non-revolving credit facility. Absent urgent additional funding and a restructuring of its business, the company will face an immediate cessation of its operations. Although Rivers has advised that it is no longer willing to provide the company with funding on an unsecured basis, it will be providing DIP financing during the CCAA proceedings. EY was appointed monitor. Counsel is Bennett Jones for the company, BLG for the monitor, and Cassels Brock for Rivers.
September 14, 2020
Mountain Equipment Co-operative (MEC), a Vancouver, British Columbia-based member-owned and directed retail consumer co-operative specializing in outdoor activity equipment and clothing, obtained protection under the CCAA on September 14, listing approximately $229.6 million in liabilities and $389.0 million in assets. MEC — which is a key Canadian retail partner with global outdoor brands including Patagonia, the North Face, Arc'teryx, Birkenstock, and Blundstone — currently operates 22 retail locations across Canada. While there was a considerable increase in online sales during March to September, MEC experienced a reduction in sales of $90 million compared to last year, and all MEC stores were closed as of March. The co-op is currently in the midst of a liquidity crisis, primarily due to difficult retail conditions which were exacerbated by the COVID-19 pandemic. As such, it was necessary for MEC to refinance, downsize operations, conduct a review of strategic alternatives, or conduct a potential sale of the MEC business. MEC's board of directors has unanimously approved a deal in which Kingswood Capital Management ("Kingswood"), a Los Angeles-based private investment firm, will acquire MEC's assets. MEC's transition from a co-operative structure to a subsidiary of Kingswood is required to ensure a stable future for the business. Alvarez & Marsal was appointed monitor. Counsel is Norton Rose Fulbright for MEC, Cassels Brock for the monitor, and Fasken for Kingswood.
September 8, 2020
Groupe Dynamite, a Montreal, Quebec-based fashion retailer that operates 322 retail stores under the brands Garage and Dynamite, obtained protection under the CCAA on September 8, listing approximately $357.0 million in liabilities and $192.0 million in assets. The company owes $149.4 million to a banking syndicate composed of National Bank of Canada, BMO, TD, and Fédération des caisses Desjardins du Québec. After record performances in 2019 and early 2020, the company was negatively affected by the ongoing pressures of COVID-19 store closures, social distancing measures, and closed borders resulting in a significant lack of tourism. Increases in digital sales since the beginning of the pandemic were not able to offset the massive impact of store closures, and the company's overall sales dropped by 50% compared to the same period in 2019. The company has unsuccessfully tried to renegotiate its store leases in order to limit its losses. During these CCAA proceedings, a numbered company will be providing up to $20.0 million in interim financing. Deloitte was appointed monitor. Counsel is McCarthy Tétrault for the company and Dentons for the National Bank of Canada.
September 8, 2020
Geox Canada Inc., which is indirectly controlled by Geox SpA ("Geox"), a global shoe and clothing retailer based in Italy, filed an NOI on September 8. Since the beginning of the COVID-19 pandemic, traffic in stores in North America remains more than halved. In the first half of 2020, Geox's revenues amounted to $7.2 million (EUR), representing a 54% decrease compared to the first half of 2019. At this time, the company is utilizing the stability afforded by the NOI to consider its various restructuring options. Geox, which has been restructuring its operations for several years, intends to streamline its physical store network and focus on its online business. Richter is the proposal trustee. Counsel is Aird & Berlis for the company and Fasken for the proposal trustee.
September 8, 2020
Zargon Oil & Gas Ltd. (TSX:ZAR), a Calgary, Alberta-based oil and gas producer, filed an NOI on September 8, listing approximately $9.2 million in liabilities. Currently, the company is actively engaged in discussions with an arm’s length third party in connection with the company's potential restructuring. These discussions are focused on obtaining the additional financing necessary to provide the company with increased liquidity and its creditors with a better outcome than the alternatives currently available. MNP is the proposal trustee. Counsel is Burnet, Duckworth & Palmer for the company and McMillan for the proposal trustee.
September 4, 2020
Urthecast Corp. (TSX:UR), a Vancouver, British Columbia-based Big Data services company specializing in satellite imaging, data services, and geo-analytics, obtained protection under the CCAA on September 4, listing approximately $151.3 million in liabilities and $126.6 million in assets. The company is well-known for operating two cameras on the Russian segment of the International Space Station. Historically, the company has been able to manage its required ongoing financing by obtaining secured bridge financing from its current group of secured creditors. Lately, however, the company has needed extensive funding to execute on projects still in development. In addition, the company's regular financing requirements have been negatively impacted by the COVID-19 pandemic, which has affected sales, the collection of receivables, and delayed the company in achieving payment milestones in connection with engineering and services contracts. EY was appointed monitor. Bennett Jones is counsel to the company.
September 4, 2020
Ernest Enterprises, a privately-owned retail company selling men’s suits and leisure wear with 37 locations primarily in Quebec, obtained protection under the CCAA on September 4. The company, which currently owes approximately $3.0 million to HSBC and $2.0 million to BDC, mainly attributes its financial difficulties to the COVID-19 pandemic. Although the company was able to operate its online operations during the COVID-19 shutdowns, online sales have been insufficient to offset the lost revenue resulting from store closures. Demands of consumers have also changed due to work-from-home policies being implemented by many employers, as well as general financial uncertainty flowing from the crisis. In the context of very significant rental expenses and diminishing revenues resulting from the COVID-19 pandemic, it is anticipated that absent a restructuring under the CCAA, the company will face a looming liquidity crisis. HSBC has agreed to provide the company with interim financing during these CCAA proceedings. EY was appointed monitor. Counsel is Stikeman Elliott for the company, Norton Rose Fulbright for the monitor, Miller Thomson for BDC, and Davies for HSBC.
September 3, 2020
RJ Burlington Inc., a Burlington, Ontario-based indoor trampoline park and franchisee of Rockin' Jump International, filed for bankruptcy on September 3, listing approximately $2.5 million in liabilities. Albert Gelman is the bankruptcy trustee.
RGN-National Business Centers and other debtors-in-possession (collectively, the “Chapter 11 Debtors”)
August 31, 2020
RGN-National Business Centers and other debtors-in-possession (collectively, the "Chapter 11 Debtors") obtained protection under the CCAA on August 31. The Chapter 11 Debtors are subsidiaries of Regus Corporation, which together with its affiliates (collectively, "IWG"), offer a network of on-demand office and co-working spaces in over 1,000 locations in the US and Canada. The Chapter 11 Debtors currently owe approximately $433.0 million to Regus Corporation. IWG, which operates 137 centres in Canada, has been severely impacted by the COVID-19 pandemic. The principal purpose of the CCAA proceedings is to prevent certain Canadian leases from being terminated while the company and Chapter 11 Debtors develop a plan to restructure the global business of Regus Corporation and its affiliates. KSV was appointed monitor. Canadian counsel is Stikeman Elliott for the company and Bennett Jones for the monitor.
August 25, 2020
Swizzlesticks Enterprises Inc., a Calgary, Alberta-based salon and spa, filed for bankruptcy on August 25, listing approximately $1.3 million in liabilities. PwC is the bankruptcy trustee.