W.K. Chan Jewellers officially in default

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This article was published 22/12/2017 (2840 days ago), so information in it may no longer be current.

After nearly three years of finding ways to wiggle out of a court-approved creditor protection order, W.K. Chan Jewellers has finally run out of time and money.

The well-known Winnipeg jeweller is officially in default, having stopped making quarterly payments to creditors last December. In January, the court will be asked to formally discharge the process under the Bankruptcy and Insolvency Act.

The business continues to operate, albeit with a much more modest footprint — it has shrunk from four locations to one during the process. And yet, its unsecured creditors have only received about half of the funds that W.K. Chan agreed to pay when the court approved the creditor protection order in 2014. At the time, unsecured creditors had agreed to accept 23 cents on the dollar of the $2.66 million they were collectively owed in quarterly payments over five years.

The reality for those creditors is that they will now be left to their own devices to try to recover any unpaid debts.

Jeffrey Johnson, a senior vice-president of PricewaterhouseCoopers Inc., has acted as the trustee of the proposal and helped W.K. Chan negotiate the terms that creditors agreed to back in the fall of 2014.

“They just simply were not able to continue to make the payments,” Johnson said. “I suspect it was a reflection of the retail environment. It is unfortunate. They worked hard to try to make it work.”

Dave Chan, the current owner of the business that was started by his father in 1978, was unavailable for comment.

The company’s first store was expropriated for the construction of Portage Place, and it subsequently became an original tenant in Portage Place. That location closed in 2009.

A location in Brandon closed just before the start of the creditor protection process, and then two Polo Park outlets and one in St. Vital Shopping Centre have since shut down. Portage Place Shopping Centre and St. Vital Shopping Centre are still listed as creditors.

W.K. Chan now has one location in a new retail development just north of Polo Park.

Some creditors were surprised at the abrupt end of the process and the fact that the trustee who was managing and monitoring the payments will be discharged from the file.

Just about every payment prior to the final default was late and required special action to get the payments back on track. When asked, Johnson said it was beyond his duties to try to hold the company’s “feet to the fire.”

It would likely cost about $5,000 in legal fees for a creditor to file a legal action for a bankruptcy order and require a retainer fee of about $25,000 for a receiver.

Typically, the rationale to launch such a proposal process as opposed to a bankruptcy is, first, so the business can remain open.

As well, it is generally assumed that the outcome for unsecured creditors in a bankruptcy scenario would have been even less attractive.

In a note to creditors early on in the process, Johnson wrote, “As has been noted previously, in the event the proposal is not accepted, a bankruptcy will result. Based on the analysis… it is likely that a bankruptcy will produce less than the proposal and there is the possibility the unsecured creditors may not recover any amount.”

While the trustee has a court date in early January to ask the court for a discharge, that is not to say the business will cease to operate.

W.K. Chan recently became one of the first Canadian clients of a large U.S. supplier to independent jewellers, called Gems One, based in the diamond district of New York.

Gems One has set up a Canadian operation and W.K. Chan is one of just seven Canadian independent jewellers being supplied by the large U.S. operation, which services about 1,100 U.S. stores.

George Prout, vice-president of sales and marketing at Gems One, said, “David has done a super job. Our product seems to sell very well in the the Canadian market.”

A W.K. Chan flyer distributed earlier this month featured the Gems One line, including $4,000-plus diamond pendants and bracelets, $3,000-plus diamond rings as well as several items under $100.

Prout said Gems One is typically among the top three suppliers to the stores that it services.

Speaking from his office in New York, he said the fact that W.K. Chan had defaulted on its creditor protection process was of no concern to Gems One.

“We have a fantastic relationship with David,” he said.

martin.cash@freepress.mb.ca