Bloomfield, Prince Edward Island, Canada-based South Shore Seafoods and several of its subsidiaries have been allowed to continue operating as a court-appointed restructuring firm decides the best way it can pay off millions in unpaid debt.
South Shore Seafoods and its subsidiaries – Captain Cooke’s Seafood, By the Water Shellfish, South Shore Seafoods International, Can-Am Lobster and Shellfish, Bridge Lobsters Limited, and Arsenault’s Fish Mart – were hit by a court order on 21 September after Toronto-Dominion Bank (TD Bank) filed requests for action to repay debt the companies have repeatedly defaulted on. The court subsequently appointed Deloitte Restructuring to begin determining how best to pay off the company’s debt, which amounts to over CAD 56 million (USD 41 million, EUR 39 million).
In filings in the Court of King’s Bench of New Brunswick Trial Division, the company was revealed to owe over CAD 26 million (USD 19.2 million, EUR 18.1 million) in principle in outstanding secured loans and guaranteed obligations to TD Bank. According to the initial application by the bank, South Shore Seafoods, its subsidiaries, and the owners Michel Jacob and Timothy Williston “have been in default of a number of their obligations” that had already forced the company into a forbearance agreement on 2 May, 2023.
The trouble for the lobster processing and supply began, according to court documents, in fiscal year 2022, after declining market conditions left the company in a poor position.
Prior to the downturn, from FY 2020 to FY 2022, the company – through the acquisition of Captain Cooke’s Seafood, Can-Am Lobster, and By The Water – achieved significant revenue growth, increasing from roughly CAD 78.6 million (USD 58 million, EUR 55 million) in revenue in FY 2020 to CAD 297.2 million (USD 219 million, EUR 207 million) in FY 2022. That revenue was coupled with increased earnings before interest, taxes, depreciation, and amortization (EBITDA), which went from CAD 4.4 million (USD 3.2 million, EUR 3 million) in FY 2020 to CAD 7.8 million (USD 5.7 million, EUR 5.4 million) in FY 2022.
However, soon after the acquisitions the price of lobster plunged due to economic factors, and according to the court documents, South Shore was left holding huge amounts expensive inventory.
“At the time of the market change, the debtors were holding approximately CAD 30 million [USD 22 million, EUR 21 million] worth of inventory, approximately 80 percent of which was frozen product susceptible to the declining market conditions,” a pre-filing report from 18 September states.
The result, according to the filing, was a 50 percent decline in EBITDA between 31 October, 2021, and 28 February, 2022.
Soon after, in May, South Shore and TD Bank agreed to convert the company’s financial arrangement to provide increased access to working capital “during a period when market prices remained depressed.” However by October 2022, the South Shore Seafoods “realized the severity of their liquidity constraints” and soon after had to curtail operations, forcing the company to skip the Southwest Nova Scotia lobster season.
Under continued financial constraints, South Shore Seafood turned to Bonfire Capital Advisors to assist in obtaining additional financing or investments – an effort that largely failed. Then in February 2023, the company discovered its inventory was overstated by CAD 2.7 million (USD 2 million, EUR 1.8 million), resulting in the company being over-advanced on its existing credit facilities.
At that time, TD Bank engaged the services of Deloitte as the company’s downward slide began. Can-Am – a Kittery, Maine, U.S.A.-based lobster wholesaler – ceased all operations in January 2023 and South Shore Seafoods became insolvent.
Now, the company owes money to hundreds of creditors, and has outstanding loans to the Business Development Bank of Canada totaling nearly CAD 6 million (USD 4.4 million, EUR 4.2 million), Cooke Group totaling CAD 3 million (USD 2.2 million, EUR 2 million), and Arsenault totaling CAD 2.5 million (USD 1.8 million, EUR 1.7 million). The company also has trade accounts payable of approximately CAD 12.8 million (USD 9.4 million, EUR 9 million), according to court filings.
The CBC reported Williston sent a letter to suppliers citing the extremely volatile lobster market as the main reason the company is facing insolvency.
"The South Shore Seafood Group of companies weathered these storms; However, it had a significant impact on its working capital," the letter states.
South Shore has since filed for creditor protection as the company begins to determine how to pay off its debt.
In a 28 September filing, the court agreed to extend the stay period, in which no proceedings against the companies or the property can take place, until 24 November, 2023. The period allows the company to continue its service and employment while restructuring proceeds.
Employees at the company and its subsidiaries will continue to be employed. All told the company employs 300 people – 10 at the executive office; 20 full-time employees across South Shore Seafood, By the Water Shellfish, and Captain Cooke’s Seafood; and 270 part-time or seasonal employees that are mostly employed by South Shore, with 80 percent of those being temporary foreign workers.
Photo courtesy of South Shore Seafoods
