The Body Shop Canada parent took revenue, left company $3.3 million in debt: court documents
The Body Shop Canada Ltd. is seeking creditor protection and closing a third of its stores because its parent company stripped the Canadian arm of cash and pushed it into debt, according to court documents.
An affidavit published through the company’s court monitor from Jordan Searle, who heads the Canadian arm, describes how troubles befell the retailer, whose parent company The Body Shop International Ltd. was bought by European private equity firm Aurelius for $355 million.
The Body Shop Canada announced Friday it will close 33 of its 105 stores and its e-commerce operations as it seeks to restructure itself under the Bankruptcy and Insolvency Act. The news came just weeks after its parent company filed for creditor protection in Britain.
The Canadian branch had
784 workers before the filings were made and about 200 will be laid off by the end of March, according to the court documents. Twenty head office employees and two contractors had their employment terminated Friday, the documents show.
Now, the longevity of the 48-year-old international company known for its cruelty-free skin care products hinges on its ability to restructure in several markets.
In Canada, where The Body Shop has been a mall stalwart since 1980, finding a path forward could involve untangling the company’s finances.
The affidavit from Searle, who has been The Body Shop Canada’s general manager since February 2023 and also runs its U.S. affiliate, said the retailer’s parent company had “full control” of The Body
Shop Canada’s inventory, human resources, accounts payables, cash management and information technology.
Since at least 2007, The Body Shop International used a cash pooling arrangement, where The Body Shop Canada’s funds were regularly sent to the parent company which then took care of its Canadian arm’s rent and payroll obligations, Searle said.
“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 said.
“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.”
The Body Shop Canada’s situation “deteriorated sharply” in December 2023, the affidavit said. The Body Shop International 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, Searle said.
The Body Shop International filed for administration in the U.K. on Feb. 13. Administration is a legal process that allows companies to restructure or wind down without paying off all its debts.
Asked about The Body Shop Canada’s claims, a spokesperson for the joint administrators being used in The Body Shop International’s U.K. proceedings said in an email 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.
On Monday, the Ontario Superior Court of Justice granted measures including a requirement for the company’s suppliers to continue to provide the retailer goods and services while it restructures and permission for stores to cease accepting gift cards and returns.