Doughnut maker gets bankruptcy plan okayed

Under the plan, the Bank of Nova Scotia, the only secured creditor, will receive a lump-sum payout of $3 million. The remaining debt of about $13 million will be restructured as a loan. Unsecured creditors, who will get a total of $2 million, will be paid in full up to the first $1,000 of their claims. After that they will receive, on average, 12 cents to 15 cents on every dollar owed.

The Toronto Star
March 8, 2002

Doughnut maker gets bankruptcy plan okayed
Country Style settles challenge out of court
Madhavi Acharya-Tom Yew

Country Style Food Services Inc. has won court approval for a bankruptcy plan that will give its creditors about 15 cents on the dollar.

The unexpected move came yesterday after a would-be franchisee dropped its legal challenge to the proposal, announcing it had reached an 11th hour out-of-court settlement with Country Style.

The court approval "is great news, the rebirth of a company," Country Style president Pat Gibbons said following the proceedings yesterday.

But it didn't feel that way for John Davis, 55, a former employee of Buns Master Bakery Systems Inc., a subsidiary of Country Style.

Davis was abruptly let go from his job of 24 years in late January, about a month after Country Style filed for bankruptcy protection under the Companies' Creditors Arrangement Act.

The former equipment technician was informed that he is considered an unsecured creditor under the plan and, as such, will receive a fraction of the $136,000 he says he is owed in severance.

"I guess it's better than nothing," Davis said after the hearing. "I've resigned myself to the fact that I'm going to get very little, if anything."

Under the plan, the Bank of Nova Scotia, the only secured creditor, will receive a lump-sum payout of $3 million. The remaining debt of about $13 million will be restructured as a loan.

Unsecured creditors, who will get a total of $2 million, will be paid in full up to the first $1,000 of their claims. After that they will receive, on average, 12 cents to 15 cents on every dollar owed.

At a meeting of unsecured creditors Feb. 18, about 93 per cent voted in favour of the proposal.

"The plan is fair and reasonable," Country Style lawyer Ashley Taylor of Stikeman Elliot told the court yesterday.

If the proposal was not sanctioned by the court, the only alternative would be to liquidate the company's assets, a step that Deloitte & Touche, the court appointed monitor, previously reported would "result in a shortfall to the Bank of Nova Scotia and other creditors receiving nothing," Taylor added.

The plan will be implemented April 9, with payouts to follow by the end of the month, Country Style officials said.

Taragon Financial Inc., which had previously struck a deal to open Country Style franchises in Cuba, was expected to argue yesterday that the bankruptcy plan should be made void by the court.

The company alleged in court filings that Country Style had not disclosed complete financial information and tried to use improper influence when creditors voted on the plan last month.

Taragon said it gave Country Style $85,000 (U.S.) to be held in trust in April, 2000. It tried to get the money back about 18 months later, after realizing its business plan would not work. At the date of the filing, Country Style had returned only about $21,000, and Taragon alleged the funds had not been held in trust.

But yesterday, Taragon lawyer Arnold Schwisberg said "all of my client's concerns have been resolved," adding that the terms of the settlement are confidential.

It had been expected that other groups would support Taragon's motion and call for the plan to be rejected by the court.

But seeing no other opposition in the courtroom, Mr. Justice James Spence granted the necessary court approval.

Country Style's principal shareholder, CAI Capital Partners, which bought the operation from Maple Leaf Foods Inc. in 1999, has since injected an undisclosed amount of new cash into the business.

The doughnut chain closed about 30 locations late last year after issuing default notices to outlets that weren't performing well. It shut 25 more under CCAA protection. There are now about 175 locations across the country.


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