David's Tea in financial distress as it seeks court protection from creditors

All 22 stores across Canada have been closed since March 17 due to the pandemic. It is not known if the location in Aberdeen Mall will ever reopen as the company plans to close a significant number of its outlets.

The Davids Tea store in Aberdeen Mall has been closed and has not paid rent since March 17, when the COVID-19 pandemic was declared — and whether it ever reopens remains in question.

The company is seeking court protection from creditors so it can continue operating while it restructures. It plans to close a significant number of its stores.

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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 davidstea.com and its wholesale distribution channel, which supplies grocery stores and pharmacies.

The chain’s stores have been shut since March 17 due to the pandemic. Davids Tea, which opened in Aberdeen Mall in the fall if 2014,  is known for its selection of loose-leafed teas. A typical outlet has more than 150 types of tea, including everything from green and black to a more obscure selection including Red Velvet Cake and chocolate mint-flavoured blends.

“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 the company 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 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..

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