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The Body Shop Canada parent took revenue, left company in debt

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Unit filed for creditor protection last week

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TORONTO — The head of The Body Shop Canada Ltd. says it’s seeking creditor protection because its parent company stripped its Canadian arm of cash and pushed it into debt.

Jordan Searle says in an affidavit that the company’s situation “deteriorated sharply” in December, after parent The Body Shop International Ltd. was purchased by private equity firm Aurelius for £207 million ($355 million) late last year.

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The Body Shop Canada general manager found The Body Shop International kept taking its money but wasn’t paying vendors because the parent company said it had lost access to its financing and was slowing payments to creditors to conserve cash.

Searle says The Body Shop Canada was accustomed to its parent taking money from its account because the companies used a cash pooling arrangement, where the parent swept its subsidiary’s revenue and paid its expenses.

When The Body Shop International sought a form of creditor protection called administration last month in the United Kingdom, Searle says The Body Shop Canada had $3.3 million in unsecured debt and no prospect of help from its owners.

A memo sent to The Body Shop employees in the United States and obtained by The Canadian Press described a similar scenario.

After recently sweeping all the funds from the U.S. arm’s account, Human Resources director Jennifer Wale said, in the memo, the parent company stopped paying vendors, creating a “catastrophic situation” where the company was cut off from its funding “with no advance notice.”

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“Aurelius remained silent in the face of all urgent requests from the company, even though aware of catastrophic consequences for North America,” Wale wrote.

The memo also noted that the U.S. division was given no advance notice of the U.K. administration proceedings.

Creditor protection

Lawyers for The Body Shop International and Aurelius did not respond to requests for comment about Searle’s affidavit, which was filed days after The Body Shop Canada announced plans to close 33 of its 105 stores.

The Body Shop Canada announced March 1 that it was filing for creditor protection and would seek to restructure under the Bankruptcy and Insolvency Act.

The company did not say how many workers would lose their jobs as a result of the store closures that span locations in cities including Toronto, Ottawa, Edmonton, Calgary, Saskatoon and Saint John, N.B.

The company’s U.S. arm has also ceased operations, The Body Shop Canada said March 1.

British media reported Feb. 29 that 75 of the brand’s U.K. stores would close and 40 per cent of its headquarters staff would be laid off.

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In Canada, the company wants to keep the bulk of its stores and said in a press release it hopes Ontario court proceedings will give it “breathing room” while it evaluates its strategic alternatives and engages in restructuring.

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As part of that restructuring, the company will cease accepting existing gift cards and selling new ones, will no longer provide refunds and will consider all new and previous purchases final, Searle said in a memo sent to Canadian staff on Friday and obtained by The Canadian Press.

— With files from Tara Deschamps, The Canadian Press

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