DavidsTea granted court protection while it negotiates with landlords

DavidsTea has been granted court protection from creditors so it can continue operating while it restructures and plans to close a significant number of its stores.

The Montreal-based company said Wednesday it obtained an initial order in Quebec Superior Court to allow it to restructure under the Companies' Creditors Arrangement Act. PwC has been appointed monitor.

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

The company said during the restructuring process it planned 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 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 added.