Country Style restructuring approved

In his court documents, Mr. Schwisberg alleged that accounting firm Deloitte & Touche LLP had been in conflict of interest because it had acted as auditor for Country Style, consultant in the restructuring and then monitor in the CCAA process. Deloitte partner Donald Allen denied these allegations yesterday, saying it was "common practice" in the financial services industry for a firm to perform these three functions.

The Globe and Mail
March 8, 2002

Country Style restructuring approved
Last-minute settlement with key creditor allows slimmed-down chain to continue
Oliver Bertin

TORONTO — An Ontario judge approved the restructuring of Country Style Food Services Inc. yesterday after the doughnut chain reached an out-of-court settlement with a key creditor only hours before they were to meet in court.

"[The] decision removes the last major hurdle to the financial restructuring of Country Style," said president Patrick Gibbons.

He said Country Style expects to complete its restructuring in April. The company, which is based in Richmond Hill, Ont., filed for protection under the Companies' Creditors Arrangement Act in December, and received the approval of 93 per cent of its creditors in a meeting on Feb. 18.

Mr. Gibbons plans to continue with about 160 of his best doughnut outlets in a "truly revitalized Country Style brand." He has closed 60 underperforming stores in recent months, and he said another 50 franchisees abandoned their businesses.

Many of the stores were closed because they were not performing up to the company's standards, he said. They were getting old or were in poor locations. Many lacked drive-through facilities, "a necessity in this business," he said, and in some cases were dirty or badly run.

There was one secured creditor. Ashley Taylor, Country Style's lawyer, told court that Bank of Nova Scotia will be paid $3-million now and the rest of its $16-million debt over several months.

The 319 unsecured creditors will be paid $1,000 and between 12 and 15 cents on each dollar owed.

The key opponent to the restructuring, Taragon Financial Inc. of Toronto, had demanded the repayment of about $100,000, claiming these funds were not affected by the CCAA action because they were franchise fees that were to be held in trust. Taragon's challenge threatened to delay the process.

Taragon lawyer Arnold Schwisberg did not oppose the restructuring in court, saying his client had settled a few hours earlier. He declined to comment on the negotiations beyond saying his client was "very happy."

Not all creditors were as pleased, however.

"It's very unfair," said John Davis, the former manager of technical services for Country Style's Buns Master division. "This isn't justice. You have to treat people in a decent and humane manner."

A 24-year veteran of the company, Mr. Davis said he was laid off on Jan. 28 with two days' pay. He said he is owed $136,000, but will receive only $1,000, his pension and about 14 cents on the dollar.

"I started with this company when they had only three stores," he said. "I can't find a job. I'm just scratching by."

In his court documents, Mr. Schwisberg alleged that accounting firm Deloitte & Touche LLP had been in conflict of interest because it had acted as auditor for Country Style, consultant in the restructuring and then monitor in the CCAA process.

Deloitte partner Donald Allen denied these allegations yesterday, saying it was "common practice" in the financial services industry for a firm to perform these three functions.


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