goodfood, montreal-based meal kit company, granted creditor protection

montreal-based meal kit company goodfood was granted protection from its creditors on wednesday, a day after its ceo resigned. the company announced it would be asking the quebec superior court to approve formal process to sell the company or seek new investment wednesday morning, as the company says it won't have the cash to make interest payments on millions of dollars in debt due later this week and in september. an initial order granting the company creditor protection was approved wednesday, the company said. "the initial order provides the stability and flexibility needed to continue implementing our turnaround plan and advance our financial restructuring," goodfood lead independent director donald olds said in a statement. "we remain focused on executing our restructuring process while continuing to serve our customers."court documents related to the initial application show the company is considering the closure or partial cessation of unprofitable plants or facilities and the termination of associated leases and contracts; the rationalization of its workforce; the renegotiation or discharge of onerous obligations, and the implementation of a sale and investment solicitation process.the document specifies the company is “suffering from cash shortages and insufficient revenue generation.”“these challenges, coupled with excessive growth during the covid-19 pandemic followed by a steep decline in sales in the following years, caused the current financial situation of goodfood,” it said. “indeed, the decrease in revenue without a corresponding reduction in operating costs has become untenable.” according to the document, goodfood counted nearly 250,000 subscribers in august 2021, compared with approximately 48,000 today.“although the average order value of goodfood customers has increased over time, this increase is not sufficient to offset the declining customer base,” it said.the company said that it doesn't have the cash to make $950,000 in interest payments due thursday on nearly $12.7 million debt. of that debt, $10 million is held by investissement québec, an investor owned by the provincial government. the company also says it won't have the cash to pay nearly $840,000 in interest on another debt — of over $29 million — which is due on sept. 30, according to the application.that debt, held by creditors who bought unsecured debentures that were issued in 2022, is supposed to be repaired at the end of march, but in its most recent financial report, released last month, the company issued a warning to investors that it will not be able to repay or refinance that debt, something it says could force it out of business.debenture holders can convert those securities into common shares in the company, but goodfood shares are currently trading at around $0.03 each. the company warns that debenture holders would probably not accept that option, nor would current shareholders approve it, because it would require issuing a large number of new shares. the company, which has laid off 122 employees since march, said it’s implementing a plan that has "improved operating performance," but that it "continues to face significant near-term liquidity constraints, including upcoming debt maturities and scheduled interest payments.”in its most recent financial report, the company said it has negative working capital, and over the past year its net debt has risen from $12.3 million to $35.85 million. revenue during its most recent quarter, which ended june 6, was $21.46 million, down from $30.68 million the year before.two days after that report, goodfood said it was seeking “strategic alternatives” due to the uncertainty about meeting its financial obligations, but now says a restructuring under the companies' creditors arrangement act (ccaa) "offers the best opportunity to preserve value, maintain business continuity and continue implementing its operational turnaround plan.”"we have made important progress in strengthening our business, but our near-term liquidity pressures require a more comprehensive solution," olds said.goodfood ceo selim bassoul resigned a day before the announcement. he held the position for less than six months, and will be replaced by the company’s president and chief operating officer, najib maalouf.the application notes goodfood’s management “has been subject to recent turnover.” for that reason and because of recent layoffs, the company owes $970,000 in severance payments to 20 employees, which will be stayed during the ccaa proceedings.saibal ray, james mcgill professor of supply chain at mcgill university, said the challenges goodfood is facing aren’t unique to one company.“almost all the meal kit companies are more or less having … problems, financial issues,” he said.the meal kit concept peaked in popularity during the covid-19 pandemic, when people were largely stuck at home with a lot of time on their hands, ray said.“they were doing a lot of cooking themselves,” he said. “it made sense.”more recently, grocery stores have started offering services not unlike those meal kit companies provide: online recipes complete with “shop all ingredient” buttons, which can be delivered straight to the customer’s door, ray pointed out.he added that customer acquisition has been costly for meal kit companies, which tend to offer free boxes to new clients for varying periods of time.“this is a model where they wanted to build a market, and they thought ‘people don't know about it, that's why people are not doing it,’” but many customers take the freebies and then cancel, ray said.“this customer acquisition cost? it was very, very high.” asked about the likelihood of a successful turnaround for goodfood, ray repeated his original point that the problem isn’t specific to one company.“i’m not sure that there is a big market for this,” he said.on wednesday, the court appointed raymond chabot inc. as monitor in the ccaa proceedings, meaning it will independently oversee the restructuring process and assist the court and stakeholders. rci noted it’s not possible to estimate the length of such proceedings.goodfood said it employs 230 people across canada and that while it doesn't expect layoffs as a direct result of the bankruptcy protection process, there may be job losses as it continues to restructure.