E-retailer Beyond the Rack files for creditor protection
April 8, 2016 06:01 PM
Canada-based flash sale e-retailer Beyond the Rack has changed its name, laid off two-thirds of its staff and filed for creditor protection in Quebec Superior Court, citing more than C$44.2 million (US$34.0 million) in debt.
Beyond the Rack, No. 189 in the Internet Retailer 2015 Top 500 Guide, has legally changed its name to 7098961 Canada Inc. to “preserve the value of the company’s brand and reduce the potential negative impact” of the filing, according to papers filed March 23 in Quebec Superior Court and obtained from Montreal-based financial advisory firm Richter, which is working with Beyond the Rack to find a buyer. The web merchant continues to operate online and on social media as Beyond the Rack, however.
According to the filing, the company thought it had found a buyer in early March, but the deal fell through. Beyond the Rack vice president of marketing Richard Cohene declined to comment.
In its filing, Beyond the Rack traces its woes to early 2014, citing a failed expansion into the U.S. as one of several reasons for its current predicament.
“Within the past few years, the general economic and market conditions in Canada and the United States has deteriorated and as a result has adversely affected access to and the cost of capital,” the company writes. “Despite significant efforts, the company has failed to secure new sources of capital and has relied upon its existing investor base and secured lenders to continue to fund the operations under increasingly onerous terms.”
Benoit Gingues, a partner with Richter who is working on the Beyond the Rack case, says the filing is similar in nature to a Chapter 11 bankruptcy filing in the United States. In order to find a buyer, Gingues says Richter has sent solicitations to more than 400 companies worldwide. Gingues expects offers to come in by April 18 and in the meantime, he says it’s mostly business as usual for Beyond the Rack.
“The site is live,” he says. “The company is still operating. We were able to secure interim financing that was put in place by the court to allow the company to maintain its operations while we do the sale process.”
In its filing, Beyond the Rack says it posted a loss of $17.1 million for the fiscal year ended Jan. 31. The company also says it had 211 employees d throughout North America, with 190 in Montreal, before cutting more than two-thirds of its staff two days before filing for protection, going to 62 employees from 211.
According to CrunchBase, Beyond the Rack has raised $78.6 million over five rounds of funding since launching in 2009. Its debt includes:
- C$13.0 million (US$10.0 million) to Silicon Valley Bank, which includes a C$9.1 million (US$7.0 million) term loan, a C$2.6 million (US$2.0 million) revolving line of credit and C$626,482 (US$482,299) in letters of credit.
- C$6.8 million (US$5.2 million) in open customer orders.
- C$4.4 million (US$3.4 million) in credit notes.
As part of its restructuring efforts, Beyond the Rack has cut its marketing spend to $8.9 million from $23 million, according to the filing, cut staff and discontinued product lines that weren’t selling well.