Wallace & Carey Inc. and its parent company have filed for creditor protection, citing “existential challenges” related to the COVID-19 pandemic, labour shortages and the decline in tobacco sales, according to a report in The Globe and Mail.
The Calgary-based family-owned distribution company counts among its 7,000 customers convenience stores across Canada, including 7-Eleven and Greenergy.
In an affidavit submitted under the Companies’ Creditors Arrangement Act, chief financial officer Brian Birnie says Wallace & Carey has been struggling under the weight of increased debts since the start of the pandemic, which were exacerbated by unpredictable and extended lockdowns, which made it difficult to manage inventory and cash flow.
He cited labour shortages, unreliable inventory demands, rising prices for fuel and equipment, overall inflation and interest-rate hikes as leading to a “much less hospitable” operating environment.
What is the CCAA? It is a federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs. The CCAA has a broad remedial purpose, allowing a company to continue in business while it seeks to develop and obtain the approval of compromises or arrangements with its creditors. Canadian courts have held that the main purpose of the CCAA is to avoid, where possible, the social and economic consequences of bankruptcy, and to allow a company to carry on business. CCAA proceedings are carried out under supervision of the Court and the statute offers more flexibility and greater judicial discretion to deal with complex issues that may arise during the restructuring process than the more rule-based Bankruptcy Insolvency Act (BIA).
Barry Prentice, supply chain management professor at the University of Manitoba, told the Globe that Wallace & Carey’s financial difficulties reflect common challenges experienced by supply chain companies: “The effects of the pandemic are long-lasting. Some companies managed to survive, but that doesn’t mean they’re prospering now.”
In 2021, Wallace & Carey celebrated 100 years in business by conducting 100 Acts of Kindness. The company has a strong reputation for supporting its "teammates" and the communities in which it operates. That same year, as part of its Frontline Heroes Awards, CICC handed out a special award to Wallace & Carey that not only recognized its milestone birthday, but also the company's special place in the heart of the convenience industry.
READ: 100 and counting: An interview with Wallace & Carey CEO Pat Carey
Wallace & Carey, which has a fleet of 120 leased trucks and trailers, leases warehouses in nine cities across B.C., Alberta, Manitoba, Saskatchewan and Ontario. In his statement, Birnie points out that Wallace & Carey employs about 650 and is a critical supplier to some of Canada’s most remote communities. In addition, Wallace & Carey owns and operates Loudon Bros. Ltd., a distributor servicing Northwestern Ontario, which has 500 customers, including Lactalis Canada Inc. and Labatt Brewing Co. Ltd.
The company tried to address its financial challenges by streamlining shipping routes and renegotiating contracts, however that wasn’t enough to meet its current debts.
Wallace & Carey:
- had collective liabilities of more than $184-million as of June 19
- is in default of a $44.4-million debt owed to Canadian Imperial Bank of Commerce for a credit agreement
- reports a news loss of $12.5-million in 2022, up from $7 million in 2021, according to is most recent audited statement
- owes the government $26-million in deferred taxes related to the sale of tobacco.
Tobacco, according to Birnie’s filing, historically represented 50% of Wallace & Carey’s revenues, but sales have been falling for decades: From 2021 to 2022, for instance, the company’s revenue from tobacco declined by $162 million.
Part of the decline in tobacco sales is due to a decrease on consumption and part is due to a rise in contraband sales, which is also impacting c-store operators across Canada.
READ: 2023 Tobacco & Vaping Report: The real story behind the numbers
What's next? Wallace & Carey is in arrears with many of its creditors, who are now cutting off credit or insisting on cash upon delivery, according to the Globe. “Some of the company’s suppliers have cut off shipments until it can pay its debts. As of June, 60 suppliers had put their accounts on hold. The Court of King’s Bench in Alberta has granted a stay on Wallace & Carey’s assets until Sept. 20. The company is in the process of negotiating with creditors. It also says it intends to operate in normal course while it restructures.”