Despite emerging from the pandemic with its financials looking positive, Body Shop Canada (BSC), has filed for bankruptcy protection. It reported that in accordance with the Canadian Bankruptcy & Insolvency Act it had filed a Notice of Intention (NOI) to seek creditor protection. The latest filing for protection follows Body Shop International Ltd (BSI) appointing Administrators, FRP, in the UK on 13th February and more recently the Body Shop US Ltd (BSU) announcement that it had ceased trading.
The Bankruptcy & Insolvency Act (BIA) operates at a federal level rather than provincial and provides a stream-lined proposal regime to allow debtors to reorganise and reach compromises with their creditors, therefore, allowing a "debtor in possession" rescue mechanism. BSC, are hopeful that by filing the NOI to make a proposal pursuant to the BIA it will be afforded breathing space. Whilst all 105 Canadian stores remain open, 33 stores have been ear marked for closure with up to as many as 200 jobs at risk.
Blame
In court documents filed, blame appears to be attributed to the relationship with BSC’s parent company, BSI. In an affidavit filed by Jordan Searle (General Manager at Body Shop Canada) it has been asserted that full control of The Body Shop Canada's inventory, human resources, accounts payables, cash management and information technology lay with BSI.
The affidavit by Mr Searle stated "The cash pooling arrangement has allowed The Body Shop Canada to operate with little to no institutional debt, helping it to weather a particularly difficult period for the retail industry: the COVID-19 pandemic,"
The affidavit went on to state "Emerging from the pandemic, The Body Shop Canada's performance has shown significant improvement and was on track to being cash-positive by the end of this year."
However, BSC’s financial position “deteriorated sharply” in December 2023. Mr Searle attributed this to BSI who kept taking its money but wasn't paying vendors because it said it had lost access to its financing and was slowing payments to creditors to conserve cash. A spokesperson for the joint administrators of BSI have responded to the claims by stating that the company had long used cash pooling but that process ceased at the time of the administration "with funds then remaining with each subsidiary entity."
According to Searle, The Body Shop Canada made about $12 million before interest and taxes in the key holiday shopping period from the start of November 2023 to the end of January 2024, which wound up with The Body Shop International.
Searle said the parent company had taken $42.9 million from The Body Shop Canada's accounts over that period and remitted $21.8 million for payables and payrolls. With no assistance from BSI, mounting debt and inability to fulfil e-commerce orders BSC felt they had no other option to file for protection against creditor action.
BSC have now been granted some breathing space with the Ontario Superior Court of Justice on Monday 4th March ordering measures including a requirement for the company's suppliers to continue to provide the retailer with goods and services while it restructures.
