closure of 16 Goodwill stores Archives - Ira SmithTrustee & Receiver Inc.

keiko nakamura goodwill.org, is goodwill a non profit organization, Goodwill, Goodwill Industries of Toronto Eastern Central and Northern Ontario, bankrupt, bankruptcy, declaring bankruptcy, restructuring, trustee, creditors, unsecured creditors, restructuring, not-for-profit, non profit, non-profit, Keiko Nakamura, ira smith trustee

Our previous vlog

The Goodwill Toronto bankruptcy has confused and astonished many people. After all, how can Goodwill, a non profit organization, go bankrupt? Isn’t the very nature of a non-profit or not-for-profit that it doesn’t have to make a profit? Yes, but by the same token, it also should not sustain losses either. At our Firm, we each volunteer at a different non-profit whose cause we believe in. The non-profit’s annual budget is not supposed to sustain a loss, but in carrying out the aims of the organization, it also does not have to make an operating profit unless of course the non-profit is trying to amass funds to designate for a specific purpose.

Unfortunately to the amazement and dismay of many, Goodwill Industries of Toronto, Eastern, Central and Northern Ontario has filed for bankruptcy, three weeks after abruptly closing its doors. It has over $6 million in debt with approximately $4.2 million owed to former employees in vacation entitlement and severance. This resulted in the closure of 16 Goodwill stores, 10 donation centres and two offices, affecting more than 430 workers. Is Goodwill a non profit organization? Apparently so!

Leaving the employee vacation pay and severance liability issue aside, I would suggest that the balance of the debt, as noted below almost $2 million, represents losses suffered from prior periods. Somewhat tongue in cheek, the other answer to the question, is Goodwill a non profit, is, YOU BET!

Is Goodwill a non profit organization? YES!

Now, more information is known, so, we want to provide you with an update on the Goodwill situation, mainly from the Goodwill Toronto bankruptcy filing documents.

Goodwill’s Creditors:

Number of unsecured creditors: 711

Amount owing: $6 million

Number of creditors not former staffers: 158 or 22%

Total owing unsecured creditors not former staffers: $1.7 million or 28%

Main Unsecured Creditors:

Anita’s Driving Academy: $2,080

Blueprint Hair Studio: $840

Brown’s Fine Foods (owns Goodway in Kingston): $7,586.09

City of Mississauga parking control: $41.00

Dr. Eric Domingo (provides general and cosmetic dentistry): $3,571.08

Dr. Nosenet Bollo-Kamara (provides family and cosmetic dentistry) $2,999.05

Dr. Robert Lubin (family and cosmetic dental care): $7,143.72

Ducati Shoes: $1,372.00

Goodwill Industries Intl: $16,827.29

Adore (dress shop): $1,397

Larj Consulting Inc. (Former TCHC CFO Len Koreonos): $19,930.38

Ministry of Community and Social Services: $150,000

Region of Peel: $34,547.30

Royal Bank Visa: $12,371.95; $1,423.83; $2,746.13; $39,413.32; $998.06; $224.87; $2,035.84

Samarqand Food & Bakery: $23,894.45

Tru It Solutions (IT firm formed by former TCHC employees): $29,680

Restructuring is a bankruptcy alternative, you just have to be able to continue carrying on business!

After its closure, Goodwill Toronto wished to enter into a restructuring, but the proposed restructuring plan would have required millions of dollars of investment for an opening balance to assist in the payment of arrears and any reopening costs. And it would also have needed concessions from the unionized staff, including a reduction in hours, layoffs, labour efficiency improvements, and benefit costs. In the end all attempts at restructuring failed and the CEO, Ms. Keiko Nakamura, resigned. As we said in our earlier vlog: “it takes money to have a successful business restructuring proposal”.

How could a not-for-profit go bankrupt?

The reality is that not-for-profits are not immune from financial problems and insolvency. Not-for-profits can suffer from the same financial problems that plague their for-profit cousins and they too can seek protection under the Bankruptcy and Insolvency Act (Canada), also known as the BIA. No individual or company is immune from financial problems. And sometimes bankruptcy is the solution.

What should I do if my company or organization is in financial trouble?

However, there are usually options and alternatives to explore before declaring bankruptcy. If you’re suffering from serious financial problems and/or are insolvent, contact Ira Smith Trustee & Receiver Inc. for a consultation. You may have what seems like insurmountable problems, but we do have the answers.

If your company or organization is trapped with too much debt, you need a professional trustee to help you manage the situation and create a viable business restructuring proposal (either under the BIA or the Companies’ Creditors Arrangement Act –CCAA) before it reaches a critical stage where bankruptcy is your only option. We have been able to help many companies carry out a successful business restructuring proposal.

Successful completion of such a program, will free you from the burden of your company’s financial challenges to go on to be a productive, profitable employer allowing management to focus on business growth and not be plagued by debt problems.
Contact us today so that you can put your financial problems behind you Starting Over, Starting Now.

So, is Goodwill a non profit organization? Not any more in Toronto!

The issue of a business restructuring proposal of Goodwill Toronto has recently been in the news. This video is an interview aired on TV Ontario, The Next Ontario show, with Dr. Sarah Kaplan, Professor of Strategic Management at Rotman School of Management, University of Toronto. The purpose of the interview is to obtain Dr. Kaplan’s views on the Goodwill Toronto closure of 16 Goodwill stores.

Toronto Goodwill thrift stores were operated, not unlike a Salvation Army thrift store, to raise funds to support the aims of the non-profit; in this case job skills and job creation for those who might otherwise be unemployable.

It takes money to restructure

We have all heard the expression “It takes money to make money”. I would like to make a slight twist on that expression by stating that it takes money to have a successful business restructuring proposal. Not only does the company and business have to be able to have sufficient cash flow in order to operate during the restructuring period, but there are also extraordinary one time expenditures related to the restructuring. Examples of such one time expenditures are reasonable one time exit fees to get out of uneconomical contracts, bonus payments to key personnel to ensure that they perform throughout the entire restructuring rather than resign for a new position elsewhere and professional fees.

Our Goodwill Toronto analysis

Our firm was consulted early in January to act as the licensed insolvency trustee in a business restructuring proposal of Goodwill Toronto. We spent half a day meeting with representatives of Goodwill Toronto in order to learn of their plight and to determine what sort of restructuring proposal might be possible.

In our meeting we learned that the main assets of Goodwill Toronto consisted of: (i) cash or liquid investments pledged to a Canadian chartered bank on account of business loans; (ii) accounts receivable with a certain percentage collectability; and (iii) inventory of items for sale, mainly used clothing, spread across 16 stores in leased locations.

We also learned that there were over 400 unionized employees, the majority of which had long term service with Goodwill Toronto. This is significant for three main reasons: (i) a viable restructuring proposal would be required to save the jobs of many, but probably not all of the employees; (ii) if the business restructuring proposal was unsuccessful, Goodwill Toronto would automatically be deemed to have filed an assignment in bankruptcy (a deemed assignment); and (iii) in a bankruptcy, the employees would have a claim under the Wage Earner Protection Program Act (WEPPA).

It takes money to implement a successful business restructuring proposal

So, why is this significant? The reasons it is significant for a restructuring vs. bankruptcy are:

The secured portion of the employees’ WEPPA claim coming ahead of all creditors, including the chartered bank, totalled approximately $900,000.
Next in priority was the claim of the chartered bank.
There were no free assets after the above 2 claims that Goodwill Toronto could use to fund operations or the extraordinary expenses associated with a business restructuring proposal discussed above.

So as you can see, with no free cash flow, no excess realizable assets or a third party who could fund a business restructuring proposal (or in the worst case a bankruptcy proceeding), it would not be possible for a knowledgeable licensed insolvency trustee to agree to act as there was no source of funding available.

This is why the best of intentions and goodwill (toronto) is not always enough!

The Sarah Kaplan interview

Professor Kaplan raises many good points in this interview, including:

We should first think about what the whole business model of the goodwill is.
The goods that they get to sell are aimed at just generating revenues that allow them to perform their actual services like job.
It may be that the retail environment is tougher in some ways if we think about the alternative for people who buy things at goodwill would be to go to discount stores or dollar stores.
As the market is becoming more and more competitive we could imagine that people would not need to shop at Goodwill if they can get a t-shirt for $5 at WalMart.
Goodwill’s in other areas though are doing fine so we may need to look a little bit more deeply into the problem.
The entire board resigned so there could be some other management issues that led to Goodwill Toronto to be running a deficit.
You have to be well managed and being a social enterprise is not an excuse to not be well managed; you need the same skills capabilities and maybe even more skills and more capabilities than in the for-profit world.
The fact that they’ve taken this extraordinary really drastic measure leads me to believe that the difficult retail environment is not the whole story and therefore not the whole story for other social enterprises.

NOTE: After writing this blog, Goodwill Toronto filed an assignment in bankruptcy.

Is your company in need of a business restructuring proposal?

If your company is trapped with too much debt, you need a professional trustee to help you manage debt and create a viable business restructuring proposal (either under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act – BIA or CCAA) before it reaches a critical stage where bankruptcy is your only option. We have been able to help many companies carry out a successful business restructuring proposal. Successful completion of such a program, will free you from the burden of your company’s financial challenges to go on to be a productive, profitable employer allowing management to focus on business growth and not be plagued by debt problems.

Contact the Ira Smith Team today in order to look at the bankruptcy alternative of a business restructuring proposal. We can help and Starting Over, Starting Now you can be restored to financial health.