B.C. pub, restaurant chain files for creditor protection

The Lamplighter Public House in Gastown is one of 11 hospitality businesses in Vancouver operated by the Donnelly Group.

Vancouver-based restaurant and pub chain the Donnelly Group has filed for creditor protection, with court documents showing the company owes a combined total of roughly $20 million to the bank, landlords, suppliers and government.

The company announced the move in a news release Wednesday saying it has initiated proceedings under the Companies' Creditors Arrangement Act, the federal law that allows corporations owing more than $5 million to restructure their business and finances in order to try to avoid bankruptcy.

The Donnelly Group operates 11 hospitality businesses in Vancouver and three in Toronto as well as a chain of barbershops, Bomber Brewery and a cleaning company that services the businesses.

"Despite the often startling perception of this filing, it's very much a constructive versus destructive financial tool that will first bring added stability and then growth to our businesses operating in the embattled hospitality industry" the company's founder and CEO Jeffrey Donnelly said in the news release.

"This will be a survivor's tale, one that we're saddened to recognize cannot be told for many of our hospitality peers due to the tragic effects of the pandemic."

According to the petition filed in B.C. Supreme Court, the company employs 815 people and has "tangible assets" of roughly $1.85 million.

"The hospitality entities primary asset is its goodwill in the hospitality industry. The name 'Donnelly Group' is synonymous with the petitioners' style of hospitality offering, which has a high profile within the Vancouver market," the court documents say.

Pandemic-related closures and restrictions are cited as the main reason why the company is saddled with so much debt, something the petition says has been compounded by factors such as an increased minimum wage, mandatory paid sick days, inflation and higher interest rates. The company says labour costs have gone up by 12 per cent and food costs by 15 per cent.

"Business has returned to close to 2019 revenue levels, but there has been margin compression due to increased labour and operational costs resulting in much less profitable businesses," the court filing says.

"Further, the businesses have experienced significant losses over the last 2.5 years and have had to service these expenses in addition to the additional bank debt."

The Donnelly Group is currently making interest-only payments of $295,000 per month to the Bank of Montreal. Paying down the principal is something the company says it can not do on a "go-forward basis." The total owing to the bank is just under $15 million, the petition to the court says.

Roughly $3 million combined is owed to the federal and provincial governments for GST, overdue PST from 2022, corporate income tax and employee health and WCB amounts.

"In order to maintain operations, the petitioners have prioritized payments to their employees and critical suppliers, and they are in arrears with CRA, some of their landlords and trade creditors," the court documents say.

The hospitality businesses owe $1.5 million in "trade payables" that are more than 60 days past due. Six locations have a combined $766,184.68 in overdue rent. The business was only able to make payroll on May 18 because of a cash advance from the CEO, the court documents say.

Because the debt totals roughly 10 times the value of the company's assets, liquidation would mean the bank would be paid significantly less than it was owed while other creditors would get nothing, the court documents say, adding that there would also be a loss of "goodwill and key staff" if the businesses had to be closed or taken into receivership.

The statement from the company says it is "optimistic" that restructuring will be completed within the next several months.

"The company aims to continue working co-operatively with its lender to revise the terms of existing loans, restructure the debt that was required to survive the pandemic, and to emerge as a more robust organization," it says.

"During this period, it expects to continue operating all of its locations without interruption, maintain relationships with suppliers and service providers, and engage its employees at current levels."

The news from the Donnelly Group comes on the heels of a study by Restaurants Canada that found the number of restaurants filing for bankruptcy has increased by 116 per cent since 2022.