Celebrity chef Mark McEwan’s business reaches deal to exit creditor protection

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Celebrity chef Mark McEwan’s restaurant, grocery and events business has reached a settlement with a landlord that had opposed the company’s restructuring plans.

The deal paves the way for McEwan Enterprises Inc. to navigate the rest of the COVID-19 pandemic with a lightened load – closing two locations that the company said were “unsustainable.”

Toronto-based McEwan Enterprises first obtained creditor protection in late September, warning at the time that it was weeks away from running out of cash. While the company had been losing money since 2017, more than a year of pandemic-related lockdowns and restrictions – which caused lasting damage across the restaurant industry – had put additional pressure on the operations.

And the company said in court documents that in order to stay afloat and preserve 268 jobs, it needed to close Fabbrica restaurant at the CF Shops at Don Mills shopping centre in Toronto, and the McEwan gourmet grocery location at Toronto’s Yonge and Bloor streets. The latter opened in 2019 and never fully got off the ground.

On Tuesday, a judge approved the plan to terminate the restructuring process under the Companies’ Creditors Arrangement Act (CCAA). The move came after McEwan Enterprises signed a settlement term sheet late last week with First Capital Holdings (Ontario) Corp., the landlord for the Yonge and Bloor location.

First Capital had opposed an earlier plan put forward by McEwan Enterprises that would have sold the business to a new company controlled by its existing owners – a subsidiary of Fairfax Financial Holdings Ltd. and Mr. McEwan – while closing the two money-losing locations. The owner of the Don Mills location, Cadillac Fairview Corp. Ltd., is also Mr. McEwan’s landlord at a number of other locations, and supported the proposal.

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But last month, a judge with the Ontario Superior Court of Justice dismissed that plan, writing that McEwan Enterprises had not fulfilled its obligation to make “good faith efforts” to sell the business to unrelated parties, or to demonstrate that a sale to related parties offers a “superior” consideration than creditors would receive from any other buyer.

Since then, MEI put forward another restructuring proposal, which would have increased the payment to First Capital – leaving the landlord with the equivalent of roughly one year’s rent, as well as leaving in place fixtures and equipment to make the location more attractive to prospective new tenants.

First Capital, for its part, pushed for the court to run a sale process, and suggested that the landlord would consider buying the business itself. Mr. McEwan said throughout the process that he was unwilling to continue his involvement with the business under any other owners, and the company contended in court documents that an open sale process could harm the business.

Instead, earlier this month, the court ordered a restricted sale process that was essentially limited to two bidders: the existing owners, and the landlord, First Capital. The order set a deadline of Dec. 31 for both to submit their proposals for the business.

The company resumed talks with the landlord about alternatives to the sale process, and closed the Yonge and Bloor location on Dec. 11. On Dec. 16, they reached a confidential settlement to release McEwan from the Yonge and Bloor lease. According to court documents, the company is also finalizing amendments to the rest of its leases with Cadillac Fairview, including closing the Fabbrica Don Mills location. Those leases “had been straining the business,” the company’s motion for the CCAA Termination Order stated.

“The consensual resolution of the company’s lease obligations is a significant positive development for the company in these CCAA proceedings, as well as for its many stakeholders,” the motion stated. “The arrangements with its landlords will result in, among other things, the company exiting its most challenged, burdensome and unsustainable locations … and proceeding with a right-sized business going forward.”

The company is expected to exit creditor protection by no later than mid-January.

“While the COVID-19 pandemic continues to create a challenging environment for the McEwan Group and the restaurant industry as a whole, with the continued support of the company’s existing shareholders, the McEwan Group will be exiting these CCAA proceedings on solid financial footing with a positive path forward for the benefit of our many stakeholders,” the motion stated.

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