Cash-strapped Sitka Surfboard Corp., a downtown surf and clothing retailer, will be asking creditors to permit it to draw up a proposal aimed at tackling debt and allowing the company to survive.
Sitka’s total debt is $3.5 million to secured and unsecured creditors, according to Abakhan and Associates, trustee for the Victoria company.
Secured creditors are owed $2.9 million, unsecured creditors are owed $517,329, and shareholder loans total $496,256, the trustee’s office said. As well, company shareholders have invested $8.8 million in equity.
Sitka was founded by Rene Gauthier and Andrew Paine, who came up with the idea while studying business at the University of Victoria. They started by making surfboards in a garage to sell to friends. The first store opened in 2004 and a Vancouver outlet was launched a few years later.
Sitka’s business is based on surfboards and high-quality outdoor clothing.
The company relocated this week to the corner of Government Street and Trounce Alley, in space previously filled by W&J Wilson, which still operates next door. It had most recently been in the 500 block of Yates Street.
A Dec. 15 meeting is set for unsecured creditors at the Victoria office of Abakhan and Associates on Douglas Street, trustee George Abakhan said from Vancouver on Thursday. An unsecured creditor does not have security on assets of a debtor.
These creditors will vote on whether to give Sitka up to May 26, 2016 to present a plan to deal with its debt.
This is called a “holding proposal, which is basically a proposal to make a proposal,” Abakhan said.
If creditors reject the idea of giving Sitka up to six months to draw up a plan, then the company will go into bankruptcy, he said.
Canada Revenue Agency is first in line when it comes to receiving any assets in the company. Because there would not be enough assets to pay secured creditors if the company dissolved, members of that group can move into the unsecured category if they wish.
Gauthier said in an interview that details of the proposal that Sitka hopes to take to creditors have not yet been drawn up.
Problems arose when the company, which had never experienced a loss, embarked on an expansion plan and needed working capital, Gauthier said. It borrowed money from Island Savings credit union, but not all the funds hoped for came through.
Another factor is a dispute over payment of Victoria property taxes with the firm’s former landlord, Gauthier said.
Sitka has performed a rigorous examination of its operations to reduce costs, he said. It closed its Vancouver store in July, cut staff to 12 from 50, and relocated to its new space at a lower rent.
Gauthier said the company is focusing on selling Sitka products rather than carrying merchandise from other manufacturers.
Sitka products are made domestically, in cities such as Vancouver and Winnipeg, he said.
“I have never been more excited about where Sitka is headed. I think it is perfect,” Gauthier said.
Despite the financial challenges, “I also see it as a huge blessing because it had us look at everything, turn over every single stone and just [have] realizations of how we could do more with a lot less.”
