McEwan Group files for CCAA
The company behind Canadian celebrity chef Mark McEwan filed for creditor protection last month after the COVID-19 pandemic led to a "liquidity crisis" that made the business insolvent.
McEwan Enterprises Inc. (MEI), which owns six high-profile Toronto restaurants such as Bymark, Fabbrica, and Diwan as well as grocer McEwan Fine Foods and a catering business, filed for Companies' Creditors Arrangement Act (CCAA) on Sept. 28 with about $11 million in outstanding liabilities and a cash balance of approximately $1 million.
"Although many of MEI’s locations have historically been profitable, certain ... locations have been underperforming for a number of years, causing a significant strain on the business as a whole," according to a court filing from the company's appointed monitor, Alvarez & Marsal Canada Inc.
"Further, the negative impacts of the COVID-19 pandemic, including extensive restaurant closures, capacity constraints and other COVID-19 related measures over the past 18 months, have been significant and have resulted in material EBITDA losses and liquidity challenges for the consolidated MEI business."
As part of its restructuring efforts, the company entered into a purchase agreement with Fairfax Financial Holdings Ltd. and McEwan himself to re-purchase the business under a new numbered company (2864785 Ontario Corp.) which will retain its staff of 268 employees while reducing lease obligations with fewer grocery and restaurant locations. The court has yet to approve the sale of the company to 2864785 Ontario Corp.
Before entering CCAA proceedings, Fairfax owned 55 per cent of MEI while McEwan owns the remaining 45 per cent. The ownership for the numbered company will remain the same, according to Robert Chadwick, a lawyer at Goodmans LLP, which is representing MEI during the CCAA proceedings. "It remains business as usual for the company," he added.
Representatives from MEI declined to comment on the matter and Fairfax was not immediately available for comment.
MEI's CCAA is the second-such move by a Canadian restaurant conglomerate associated with a star Canadian chef following Buca owner King Street Company Inc.'s filing back in November where it also cited financial difficulties accentuated by the pandemic.
McEwan said in an affidavit that his McEwan Group - a wholly-owned subsidiary of MEI - has not been profitable since 2017, pointing specifically to two restaurant locations in Toronto's Don Mills neighbourhood which "have been significantly underperforming over an extended period of time." As well, the McEwan Grocery located around Toronto's Yonge-Bloor area has "created significant strain on the company’s liquidity" since it opened in 2019.
Those challenges were further accelerated during the onset of the COVID-19 pandemic in March 2020 which closed restaurants and other retail businesses across Canada to prevent the spread of the novel coronavirus. Despite MEI's grocery locations being able to remain open during the lockdown period, they still suffered a drop in sales as fewer people ventured out to do their shopping, the affidavit states. While MEI's restaurants have since re-opened, they still operate under a reduced capacity.
To stay afloat, MEI received $300,000 in subsidies under the Canada Emergency Rent Subsidy, $3.3 million from the Canada Emergency Wage Subsidy, $60,000 in an interest-free loan from the Canada Emergency Business Account, and $250,000 in a Highly Affected Sectors Credit Availability Program loan. MEI also received several lease concessions from its landlords including rent deferrals, as well as additional debt financing from Fairfax, and conducted temporary staff layoffs, but the company is still facing a "liquidity crisis."
"While the business has begun to experience some improved performance following the recent permitted re-openings of restaurants in Toronto, a number of the McEwan locations remain unsustainable based on the costs of operating such locations and their poor sales results. Such locations have continued to place increased liquidity pressure on the remaining business," the affidavit states.
At the end of last year, MEI had a book value of $24.3 million and total liabilities of approximately $25.1 million. It generated about $30.1 million in revenue in 2020, down from $45.3 million in 2019. MEI lost $2.8 million in 2020, an increase from $1.2 million it lost in 2019.