BUSINESS
07/08/2020 10:57 EDT | Updated 07/08/2020 11:07 EDT

David's Tea Plans To Close Stores As It Files For Bankruptcy Protection

The Montreal-based company says it hasn't paid rent since March.

Chris Young/THE CANADIAN PRESS
David's Tea co-founder David Segal is pictured at an outlet in Toronto on Feb. 9, 2016. The company says it plans to focus on online and retail sales as it restructures.

MONTREAL — DavidsTea is seeking court protection from creditors so it can continue operating while it restrutures and plans to close a significant number of its stores.

The Montreal-based company said Wednesday it will seek an order in Quebec Superior Court to allow it to restructure under the Companies’ Creditors Arrangement Act.

It also plans to seek similar orders for its U.S. subsidiary under Chapter 15 of the U.S. Bankruptcy Code.

The company said during the restructuring process it plans to continue operating online through its website and its wholesale distribution channel, which supplies grocery stores and pharmacies.

The chain’s stores have been shut since March 17 due to the COVID-19 pandemic. 

“The transformation of our business model is necessary to position the company for a return to profitability,” chief financial officer Frank Zitella said in a statement.

“DavidsTea has experienced a multi-year decline in brick and mortar sales and the post COVID-19 retail environment creates significant challenges for our unique in-store customer experience.”

It had warned in mid-June that it hadn’t paid rent on any of its stores for April, May and June and that it may seek a formal restructuring.

Zitella said Wednesday it would seek more favourable lease conditions from landlords and ultimately may terminate “a significant number” of its 222 leases.

DavidsTea’s founder and interim chief executive, Herschel Segal, said he regretted the impact that the restructuring will have on its employees.

“This has been an incredibly difficult decision to take, but a necessary one to ensure the long-term viability of our company,” Segal said.

This report by The Canadian Press was first published July 8, 2020.

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