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Landlord opposes CCAA restructuring by celebrity chef Mark McEwan

Landlord opposes CCAA restructuring by celebrity chef Mark McEwan

2021-10-13 7:35:00 PM

Landlord opposes CCAA restructuring by celebrity chef Mark McEwan

First Capital Holdings (Ontario) Corp. says McEwan Enterprises should be required to test the market by undergoing a sale process for the business

Fred Lum/The Globe and MailThe landlord of a downtown gourmet grocery location that celebrity chef Mark McEwan calls “the biggest mistake of my career” is opposing his company’s restructuring plans.Toronto-based McEwan Enterprises Inc., Mr. McEwan’s restaurant, grocery and events business,

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obtained protection from creditorson Sept. 28, saying unless its plan to close two money-losing locations is approved, it will run out of cash within weeks.The company is asking for approval under the Companies’ Creditors Arrangement Act (CCAA) to restructure its operations by transferring most of the business to a new company held by the same owners. A subsidiary of Fairfax Financial Holdings Ltd.

owns 55 per cent of McEwan Enterprises, and the rest is owned by Mr. McEwan’s holding company, McEwan Holdco Inc.Story continues below advertisementThe transaction would leave behind two leases in Toronto: for the McEwan gourmet grocery location at Yonge and Bloor streets, and for the Fabbrica restaurant in the shopping mall CF Shops at Don Mills, both of which would close. headtopics.com

The landlord for the Yonge and Bloor location, First Capital Holdings (Ontario) Corp., is opposing the move, arguing McEwan Enterprises should be required to test the market by undergoing a sale process for the business. In a factum dated Oct. 5, the landlord’s lawyer argued the proposed transaction is an “abuse” of the CCAA process.

“Allowing the Applicant to continue to conduct this CCAA proceeding as it proposes to do would set an extremely dangerous precedent for other debtors seeking to emerge from the COVID-19 pandemic by misusing and abusing the CCAA and other insolvency and restructuring regimes, and would set back landlord rights considerably and without reason,” the factum stated.

In an affidavit dated Oct. 1, Mr. McEwan stated that, in consultation with legal counsel, the company determined that a sale process was not necessary, and that not soliciting outside offers presents “no prejudice to stakeholders,” because no other buyer would likely pay a higher price for the assets. Mr. McEwan stated that continuing partnership with Fairfax would be a prerequisite for him remaining

involved in the business, and that the value of the business is inherently linked to his name and his involvement.“Through my career I have experience with failed partnerships and believe that the working relationship and trust I have with Fairfax, combined with their skills, attributes and willingness to continue to support the Business through these challenging times are fundamental to the future success of the Business,” Mr. McEwan stated in the affidavit. headtopics.com

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McEwan Enterprises comprises a catering business, high-end restaurants – including Bymark, Fabbrica and Diwan – as well as food halls and a gourmet grocery shop. The company also has a partnership with meal-kit service Goodfood Market Corp., and draws revenue from Mr. McEwan’s media projects, such as the Food Network show Top Chef Canada.

The company had expanded in recent years, but was losing money even before the COVID-19 pandemic forced many restaurants to close and led to. According to court documents, McEwan Enterprises had not been profitable since 2017.Story continues below advertisement

In a cross-examination on Oct. 4, Mr. McEwan said the Yonge and Bloor location – which opened in 2019 and sells high-end groceries – had underperformed compared to expectations.“I think First Capital made a mistake as well anticipating that this property would perform to the degree that they thought it would,” he said, “and I made a mistake – the biggest mistake of my career was signing that lease with First Capital, and there’s no rectifying that business situation.”

Terminating the lease is “the only obvious action that makes any sense,” Mr. McEwan said.The remainder of the leases for McEwan’s businesses are with Cadillac Fairview Corporation Ltd., and discussions with that landlord are continuing, Mr. McEwan said. According to court documents, the Fabbrica restaurant location and McEwan grocery at Don Mills were also underperforming before the pandemic. headtopics.com

To support the company’s operations, its shareholders provided $1.1-million in equity financing in March, 2020, even before public health restrictions related to COVID-19 forced restaurants to temporarily close their doors.McEwan Enterprises lost $1.3-million in 2019 and $2.8-million in 2020. In the first six months of this year, it lost another $2.2-million.

Story continues below advertisementMcEwan Enterprises plans to make a motion this Friday at the Ontario Superior Court of Justice for approval of the sale. The proposal includes a plan to offer jobs to all of the company’s 268 employees, including those at the locations that would be closed.

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Like many restaurant owners, McEwan Enterprises has been hit hard by COVID-19. Its restaurants have been closed for a total of 10 out of the past 18 months, and since reopening in June, they have had to operate with capacity limits.During the lockdowns, the company received government support that included roughly $3.3-million under the federal wage subsidy program, $300,000 in rent subsidies, a $250,000 loan under Business Development Canada’s program for pandemic-affected sectors and a $60,000 loan under the Canada Emergency Business Account (CEBA).

As of Aug. 31, McEwan Enterprises had $10.25-million in liabilities, including a $2.3-million loan from Fairfax, as well as another $2.3-million owed to suppliers, $2.2-million owed to Royal Bank of Canada, $539,000 in overdue or deferred rent owed to landlords and $488,000 in gift cards not yet used by customers.

Read more: The Globe and Mail »

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