The Body Shop Canada seeks production from UK parent

In the Matter of the Notice of Intention to Make a Proposal of The Body Shop Canada Limited
Can an order requiring third parties to produce the debtor's documents be made in NOI proceedings?

Overview: In this case, the Court considered a request by the Body Shop Canada for an order directing anyone in possession of its books and records - including its UK parent and a secured creditor - to deliver the books and records to the Body Shop Canada on the request of the company or the proposal trustee. While section 164(1) of the BIA (which provides jurisdiction to make such an order) does not, according to the language of that subsection, apply to Division I Proposals under Part III of the BIA, section 66(1) invites the court “to participate in a process of intelligent harmonization and adaptation” and permits the court, on a case-by-case basis, to adapt and apply sections of the BIA to an NOI proceeding where appropriate.

The Body Shop Canada Limited (“TBS Canada”) is a retailer that sells cosmetics, skincare and perfume products through 105 retail stores located across Canada and via an e-commerce platform branded as “The Body Shop”. It filed a Notice of Intention under the Bankruptcy and Insolvency Act on March 1, 2024. TBS Canada is owned by The Body Shop International Limited (the “UK Parent”), and its head office is located in Toronto.

TBS Canada’s secured creditor is Aurelius IV UK AcquiCo Seven Limited (“Aurelius”), which has a security interest over all of the assets and property of TBS Canada pursuant to a general security agreement registered under the personal property security regimes in each province and territory across Canada. Aurelius also owns, indirectly, all of the outstanding shares of the UK Parent. Aurelius, indirectly through related entities, acquired TBS Canada in December 2023. It entered into a loan agreement with the UK Parent pursuant to which it made funds available to the UK Parent for the purpose of assisting the purchaser to fund the acquisition. The obligations under that loan agreement were guaranteed by TBS Canada, which granted to Aurelius security over all of its assets.

On February 13, 2024, FRP Advisory were appointed joint administrators of the UK Parent in the United Kingdom. Historically, the UK Parent regularly completed a cash sweep of the accounts of TBS Canada with the result that all funds and liquidity of TBS Canada were remitted to the UK Parent, in return for it paying the payables, including rent and payroll obligations, of TBS Canada. From November 1, 2023 until February 12, 2024 (the day prior to the UK Parent being placed into administration), the UK Parent continued to sweep receivables from the bank accounts of TBS Canada. However, during the same period, the UK Parent failed to remit payments in full to the vendors and landlords of TBS Canada as it had done previously in exchange for sweeping the cash accounts. As a result, TBS Canada incurred debts in excess of $3.3 million, which it was unable to satisfy.

TBS Canada made requests to the UK Parent, the UK administrators and Aurelius to return the funds that were swept, or in the alternative, to provide funding to enable TBS Canada to satisfy its outstanding obligations. Those entities advised nonetheless that no funding support would be provided to TBS Canada and they refused to return the cash swept and retained by them. In addition, the UK Parent had not been cooperative or responsive to requests for information and documentation since the filing of the NOI in Canada.

TBS Canada sought an order, among other things, directing all persons in possession of books, records and other property belonging to it, to produce or deliver same promptly to TBS Canada upon the request of either TBS Canada or the Proposal Trustee. Jurisdiction to make such an order is found in section 164(1) of the BIA. Section 164 does not, according to the language of that subsection, apply to Division I Proposals under Part III of the BIA. However, section 66(1) provides that “All the provisions of this Act, except Division II of this Part, insofar as they are applicable, apply, with such modifications as the circumstances require, to proposals made under this Division.” Section 66(1) “invit[es] the courts to participate in a process of intelligent harmonization and adaptation” and permits the court, on a case-by-case basis, to adapt and apply sections of the BIA to an NOI proceeding where appropriate.

When read together, sections 66(1) and 164(1) permit such an order in an NOI proceeding in order that the objective of section 164 can be achieved. That objective includes ensuring that the trustee can fulfil its responsibilities to investigate and value, or otherwise establish, the assets and the liabilities of the bankrupt, and to otherwise discharge its duty to the creditors of the bankrupt to value and realize the value of the estate. While a Proposal Trustee and a Trustee in Bankruptcy are different officers of the Court, each has duties to creditors to protect the assets of the debtor and to realize on their value. It is just as essential that a trustee have recourse to the books and other documents of the company in the administration of a proposal as it would in the case of a bankruptcy.

In this particular case, the UK Parent, Aurelius and the UK administrators were in possession of certain of TBS Canada’s accounting and other records. Without those, TBS Canada could not perform many of the human resource, accounts payable and accounts receivable functions that were integral to its ongoing business. This was a case that warranted the intelligent harmonization of sections 164(1) and 66(1), and the order requiring production of the books and records achieved such harmonization.

The Court granted TBS Canada’s motion.

Judge: Osborne, J.

Counsel: Natasha MacParland and Natalie Renner of Davies for The Body Shop; Jane Dietrich and Alec Hoy for A&M as proposal trustee; D.J. Miller of TGF for Oxford; David Bish of Torys for Cadillac Fairview; and S. Michael Citak of Gardiner Roberts for Crombie Property Holdings and agent for counsel to RioCan and Cushman & Wakefield