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Mark McEwan in the Diwan restaurant at the Aga Khan Museum on Nov. 4, 2015. A judge has dismissed the celebrity chef’s restructuring plans for his restaurant, grocery and events business.Fred Lum/The Globe and Mail

A judge has dismissed celebrity chef Mark McEwan’s restructuring plans for his restaurant, grocery and events business, which proposed selling the business to a new company controlled by its existing owners while closing two money-losing locations.

Toronto-based McEwan Enterprises Inc. obtained protection from creditors on Sept. 28, warning that the business was in danger of running out of cash within weeks. To prevent this, the company sought approval under the Companies’ Creditors Arrangement Act (CCAA) to make the sale, and to leave behind the leases for the McEwan gourmet grocery location at Toronto’s Yonge and Bloor streets, and for the Fabbrica restaurant in the shopping mall CF Shops at Don Mills, both of which would close.

The Yonge and Bloor landlord, First Capital Holdings (Ontario) Corp., opposed the move. The remainder of the leases for McEwan’s businesses are with Cadillac Fairview Corp. Ltd., which supported the proposed deal.

In documents filed with the Ontario Superior Court of Justice, the company had argued it would be unable to sell to a third party for a higher price, since Mr. McEwan would be unwilling to partner with other owners, and since the value of the company effectively depends on his involvement. A subsidiary of Fairfax Financial Holdings Ltd. owns 55 per cent of McEwan Enterprises, with the rest owned by Mr. McEwan’s holding company, McEwan Holdco Inc.

But in a decision released on Monday, Chief Justice G.B. Morawetz wrote that a requirement under CCAA was not met. The law specifies that before selling a business to a person related to the company, the owners must make “good faith efforts” to sell to unrelated parties, and must demonstrate that their plan offers a “superior” consideration to creditors than would be received under any other offer.

The judge said that one alternative, outlined by the monitor overseeing the process, would be for the company to go into receivership and bankruptcy, which would provide a $520,000 consideration to the Yonge and Bloor landlord – the same amount as in the proposed sale.

“MEI [McEwan Enterprises Inc.] had a choice. MEI could have proposed superior consideration to the [Yonge and Bloor] landlord, but they elected not to do so,” the Chief Justice wrote.

As of Oct. 22, the company had a cash balance of $207,000, according to documents filed by the monitor on Monday.

As of Aug. 31, McEwan Enterprises had $10.25-million in liabilities, including a $2.3-million loan from Fairfax, another $2.3-million in payments owed to suppliers, $2.2-million owed to Royal Bank of Canada, $539,000 in overdue or deferred rent owed to landlords and $488,000 in gift cards not yet used by customers.

McEwan Enterprises owns Mr. McEwan’s catering business, high-end restaurants including Bymark, Fabbrica and Diwan, food halls and the gourmet grocery store. McEwan Enterprises also receives revenue from Mr. McEwan’s media projects, and has a partnership with meal-kit service Goodfood Market Corp.

The business had been expanding in recent years, and began losing money in 2017. Even before the COVID-19 pandemic forced many restaurants to close – and lockdowns were particularly protracted in Toronto, where most of the business is concentrated – both the Fabbrica and Yonge and Bloor locations had been underperforming, according to court documents. Its shareholders provided $1.1-million in equity financing in March, 2020, to support the operations – just before those closings led to deep losses across the industry.

The sale proposal dismissed on Monday included a plan to offer jobs to all of McEwan’s 268 employees, including those at locations slated to be closed.

During the lockdowns, the company also received government support, including roughly $3.3-million under the federal wage subsidy program, $300,000 in rent subsidies, a $250,000 loan under Business Development Canada’s program for pandemic-affected sectors and a $60,000 loan under the Canada Emergency Business Account (CEBA).

McEwan Enterprises lost $1.3-million in 2019 and $2.8-million in 2020. In the first six months of this year, it lost another $2.2-million.

The court has granted an extension of the CCAA stay period while the company considers alternative options.

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