Mallard Cottage may be forced into bankruptcy
BDC alleges owner sold building to avoid paying money owed
Well-known St. John’s restaurant Mallard Cottage may soon be forced into bankruptcy.
The restaurant, which has been named one of the Top 100 in Canada, is the subject of a court hearing on April 24 brought forward by the Business Development Bank of Canada (BDC), which says the owner owes it more than $500,000 and that the building was sold to a numbered company belonging to him without paying off the outstanding loans owed to that bank.
WATER WEST
According to documents filed in Newfoundland and Labrador Supreme Court, BDC was owed $702,626.08 by Water West Inc. related to the now-defunct Water West restaurant, which was also owned by the owners of Mallard Cottage.
The loans for the Water West property were backstopped by a corporate guarantee from Mallard Cottage Inc.
The primary shareholder in Mallard Cottage Inc., which has Blair Mcintosh listed as its only director, is Muskox Impact Investments Ltd., which also has Mcintosh listed as its sole director. Chef Todd Perrin, who formerly owed the business, stepped away from it in the fall of 2023.
‘FIND A NEW LENDER’
On June 30, 2023, BDC notified Water West that its loans
were in default and, shortly after, a private receiver was appointed to sell its property at 720 Water St.
Between June and August 2023, the private receiver attempted to sell the Water West property, but no successful offers were received. As a result, the receiver listed the property for sale with Martek Morgan Finch.
According to the court documents, on Dec. 19, 2023, James Hughes, a shareholder of Muskox, issued a memo to Mcintosh entitled “Mallard Liquidity,” which says TD Bank, the primary creditor of Mallard Cottage Inc. at the time, is “on our back to find a new lender.”
OVER $750,000 OWED
The memo said the debt due to the TD Bank was almost $400,000. The company also owed the Canada Revenue Agency (CRA) almost $200,000 and had other debts in the range of $155,000.
“There is no cash in the bank and no other current assets to speak of,” Hughes said in the memo.
“Paying off and servicing this debt will require a new injection of cash. As the restaurant will be closed from January 1st, 2024 to early May 2024, we will have no cash flow coming in for about five months. With fixed costs equal to about $25,000 per month for a total of $125,000 over the next five months until we restart operations, we have to find the money to pay these ongoing costs in addition to aforementioned debt.”
The memo says they also have to find and hire a new general manager and carry out expansion plans in the restaurant “so that we can have both the leadership and the space to actually make a profit in the 2024-25 fiscal year,” and it estimates another $300,000 would be necessary to secure a manager and carry out the minimum level of renovations.
OPTIONS CONSIDERED
The memo laid out a few options, which included selling the Mallard Cottage building in Quidi Vidi and leasing it back to the restaurant, but pointed out there are risks in that plan since it could lead to the loss of control of the building “which is intimately connected to the Mallard restaurant brand.”
Hughes recommended that they sell the building at 8 Barrows Rd. (Mallard Cottage) to a company Mcintosh controls for $704,000, arrange to lease it back to Mallard, and use the proceeds to pay off the debt, hire a new manager and renovate the building.
MALLARD COTTAGE SOLD
The court documents say the Mallard Cottage property was sold on Jan. 3, 2024, to a numbered company, 7837186 Canada Inc., which has Mcintosh listed as a sole director, for $712,500.
BDC is alleging no notice was given to it about the sale of the property, which was the only significant tangible asset of Mallard Cottage Inc., and that the money was used to pay off other creditors, including $23,961.21 to Mcintosh directly and $146,943.67 to Muskox Impact Investments.
The court documents also allege the deed transferring the Mallard property to 78271876 was not registered until Jan. 10, a week after the funds were paid to the other creditors.
“The petitioner (BDC) was not advised of the sale of the Mallard property prior to it being sold to a non-arm’slength entity, was not aware of the debtor’s financial situation as outlined in the Liquidity Memo, and as noted above, received no payment on the corporate guarantee from the sales proceeds,” BDC’S counsel states in the court filings.
BDC APPLICATION
The application filed by BDC says these actions constitute an act of bankruptcy under the Bankruptcy and Insolvency Act and that selling the property without making payments to BDC violates the Fraudulent Conveyances Act.
“The debtor has acted in bad faith, and in direct violation of s.3 of the Fraudulent
Conveyances Act,” the court filings read. “The debtor sold the Mallard property, under the auspices of the ‘Liquidity Memo’ to claim the ‘colour of right,’ when in fact the net result of the transfer was to deprive BDC of any chance of recovery on the corporate guarantee.”
BDC, which says it is owed “at least $500,000,” is asking that Mallard Cottage Inc. be declared bankrupt and that a licensed insolvency trustee be appointed.
The hearing into the matter is scheduled for April 24 in St. John’s.
The Telegram contacted Mcintosh for comment but did not receive a reply by press time.