Mastermind Toys files for creditor protection, seeks court permission to close 'initial group' of stores

A customer walks into Mastermind Toys store on Queen St. East in Toronto on Tuesday, September 19, 2017. THE CANADIAN PRESS/Chris Donovan

Mastermind Toys, one of Canada's iconic specialty toy stores, has filed for creditor protection, the company announced Friday.

"The difficult but necessary decision to seek creditor protection under the CCAA (Companies' Creditors Arrangement Act) was made following careful evaluation of available alternatives and in consultation with legal and financial advisors," the company said in a press release.

Mastermind Toys cited a range of challenges, including increased competition, disruptions from the COVID-19 pandemic, and a deteriorating macro-economic environment, as "too significant to overcome."

Joshua Harris, partner at insolvency trust firm Harris & Partners, says it's important to note that this is not a bankruptcy but an alternative.

According to Harris, creditor protection is a court process for companies that have over $5 million in debt and implements a 'stay of proceedings' to stop creditors from any sort of collections. "During this time, while they put together a plan, they can't be pursued by landlords or trade creditors like suppliers," said Harris in a phone interview with CTVNews.ca.

The Canadian toy retail company said they intend to seek the court's permission to commence the store closure process for an "initial group of stores," while exploring "strategic alternatives" for the remaining stores.

"The Monitor is currently engaged with a potential going concern purchaser, which would see the purchaser acquire certain assets of the Mastermind Entities, including a large number of Mastermind LP stores," a company representative told CTVNews.ca in an email. "The Monitor" refers to a court-appointed, independent third party that's licensed to act as a trustee.

Harris says a potential could be using this protection to get out of leases to consolidate their business into less stores.

"They've got over 60 stores so they've got some leases they want to get out of possibly in very expensive malls, possibly in cities that you don't have high traffic," said Harris.

Harris says similar cases include Sears Canada, Toys R Us, and the McEwan Group.

"We have to wait for that initial court report to see what actually is going to come out of it, what their real plan is."

According to Mastermind Toys, they expect to seek additional relief from the court at a comeback hearing on Nov. 30.

Mastermind Toys said all 66 stores across Canada will remain open and holiday promotions will continue online and in store.

Mastermind Toys opened its first store in Toronto in 1984 and was founded by brothers Andy and Jon Levy, according to the company's website.