DavidsTea files CCAA, Chapter 15 cases to transition to online sales

By Caroline Salls

Pittsburgh, July 9 – DavidsTea Inc. and DavidsTea (USA), Inc. made a Chapter 15 bankruptcy filing Wednesday in the U.S. Bankruptcy court for the District of Delaware to gain U.S. recognition of Companies’ Creditors Arrangement Act proceedings pending before the Quebec Superior Court.

According to a company news release, the Quebec court entered an initial order in the CCAA case, which was filed to implement the company’s restructuring plan.

The order provides for appointment of PricewaterhouseCoopers, Inc. as DavidsTea’s CCAA monitor.

DavidsTea said in a separate news release that its CCA restructuring plan will accelerate its transition to an online retailer and wholesaler of tea and accessories.

The company said it does not expect to issue any shares in the restructuring process or that the restructuring will have any impact on its share structure.

Following a review of available options to stem the losses from its brick-and-mortar footprint, DavidsTea said its management and board of directors determined that a formal restructuring process is the best option in the context of an increasingly challenging retail environment, further exacerbated by the Covid-19 pandemic.

“Our challenge is to restructure our North American retail footprint in order to decrease the ongoing losses caused by unprofitable stores,” founder, chairman and interim chief executive officer Herschel Segal said in the release.

Chief financial officer and chief operating officer Frank Zitella said in the release “The transformation of our business model is necessary to position the company for a return to profitability. 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. As a result, we have to accelerate the transition of our business away from brick and mortar.”

The company said all DavidsTea retail stores have been closed since March 17 because of the pandemic and will remain closed until further notice.

According to a 10-K filed with the Securities and Exchange Commission in June, DavidsTea had C$139.66 million in total assets and C$116.31 million in total debt as of Feb. 1.

Buchanan Ingersoll & Rooney PC is representing the company in its Chapter 15 proceedings.

DavidsTea is a tea company based in Montreal. The Chapter 15 case number is 20-11802.

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