Encore Vineyards prepares to meet creditors to resolve claims
May 22, 2020
Penticton, British Columbia – Business succession can challenge even forward-thinking entrepreneurs, as efforts to prevent the demise of Time Winery in British Columbia shows.
Time is operated by Encore Vineyards Ltd., which sought protection from creditors May 7 while it finalized plans to restructure its business. Creditors will meet May 26 to consider the proposal.
Time, which produces about 15,000 cases annually, was founded in 2014 by B.C. wine pioneer Harry McWatters, who played no small part in the transformation of Canada’s wine industry following the original Canada-U.S. free trade agreement (later expanded to include Mexico and since renegotiated as USMCA) in 1988. He was the founding chairman of VQA Canada and the BC Wine Institute while at the same time running Sumac Ridge Estate Winery, which he sold to Vincor Canada in 2000. A mentor to dozens in the B.C. wine industry, he was appointed in 2015 to serve on the BC Wine Appellation Task Group that recommended revamping B.C.’s system of geographic indications (appellations), labelling terminology and other changes aimed at modernizing the sector.
But McWatters’ untimely death last summer revealed the financial challenges of launching a new winery, creating a challenge for his daughter Christa-Lee McWatters, who succeeded him at the helm of Time.
“The company was in a challenging financial position after having sustained material losses throughout its existence,” according to documents prepared by receiver BDO Canada Ltd. in advance of the meeting with creditors.
Encore was incorporated in 2014 to acquire the assets of Encore Vintners Ltd., in which McWatters had also been involved, for $10.1 million. (All financial amounts in Canadian dollars.) Compounding the financial challenges were delays in the construction of its premises in Penticton, a ban on B.C. wine by the neighboring province of Alberta in 2018 during a spat over an oil pipeline, and wildfires that year that discouraged tourist visits.
The end result was $18 million in liabilities on a balance sheet with just $3.4 million in assets, primarily the winery premises, inventory and furniture.
“Despite measures taken to improve the profitability of the company, in large part as a result of the debt load being carried by the company, profitability and positive cash flow could not be achieved,” BDO reported.
When the state of affairs became fully known after McWatters’ death, Encore Vineyards began exploring the sale of assets, outside investment, or the sale of the business. The winery was quietly marketed and seven potential purchasers stepped forward. Due diligence resulted in Mayert Family Holdings Ltd. advancing a purchase offer of $5.8 million that Encore accepted on May 6.
The principal of Mayert Family Holdings is Ron Mayert, who developed the Petcurean line of pet foods and is also owner of craft brewer Old Yale Brewing in Chilliwack.
The deal with Mayert is the linchpin of the proposal creditors will consider on May 26.
“The company will effect a sale of the assets of the company to the purchaser in the expectation that all creditors will derive a greater benefit than from the continued operation of the business or from a forced liquidation of its assets,” BDO explained.
Encore has eight secured creditors, seven of which would see claims totaling $5.2 million repaid under the proposal. Encore Vintners is the eighth, and $7.2 million owing on a promissory note issued at the time of the asset sale in 2014 will be settled for $200,000.
Sums owing to 36 unsecured creditors will receive approximately 37 cents on the dollar under the proposal.
“All creditors are expected to realize a recovery that is greater than that anticipated in a bankruptcy scenario,” BDO stated.
The winery’s 177 preferred shareholders stand to lose their $5.1 million investment in the business, however.
According to BDO, the offer is the best chance for the winery to remain a going concern.
“Given the current economic climate, and the impact that the COVID-19 crisis has had on the availability of funds it is not expected that any larger offers could be garnered in any timeframe during which the Company could remain viable and continue operating,” the report to creditors stated. “If the Proposal is rejected, the Company will automatically be deemed bankrupt.”
Christa-Lee McWatters, who has been in regular contact with shareholders throughout the process, told Wine Business the turn of events has been challenging.
“It’s been an extremely stressful and disappointing time for our team and our entire family,” she said.
“I have worked very hard to make the best of this situation,” she told shareholders in announcing the deal. “I am so very sorry that our investments have not turned out as my father had hoped and planned.”