Scanwood Canada Ltd. shut down ready-to-assemble wood furniture production last month, strapped for cash and unable to persuade its union workers to accept concessions that might have facilitated its sale and bought it more time to regain its footing.

How much time? Hard to say, considering that when Woodworking Network first started reporting on the Dartmouth, Nova Scotia-based company in February, it had just been declared insolvent by the courts, akin to receiving Chapter 11 bankruptcy protection here in the states.

One month later, Scanwood, which was founded in 2004 by Swedwood, the manufacturing arm of global furniture giant IKEA, secured a $1 million loan to help it battle through cash flow problems. A Halifax court okayed the loan from TCE Capital over the objections of the Royal Bank of Canada and the Business Develpment Bank of Canada, which are owed $2.1 million and $4.9 million respectively by Scanwood. The company reportedly owes a total of $24 million to creditors.

At that time, Bo Thorn, president of Scanwood, told the Chronicle Herald, "We are trying to produce as much as we can, but we’ve been limited by available resources. It’s a victory for us and now we’re getting back to work at the plant and also on our restructuring proposal."

Things went from bad to worse in April, when the company halted operations, laying off some 235 union workers in the process. The Canadian Auto Workers (CWA), which represents the union workers, said a bid by SBA Furniture Group of Lithuania to purchase Scanwood died because "workers at the company refused to accept further concessions."

With that apparent deal dead, Scanwood announced it would liquidate its assets. The court appointed insolvency consultants Green Hunt Wedlake to oversee matters. Among its efforts to find a buyer for the entire plant, the the company placed an advertisement in the June issue of Wood & Wood Products and even ran a small display ad last week in the New York Times.

Green Hunt Wedlake received a boost from a Halifax Supreme Court Judge earlier this month in its efforts to sell the plant intact. The judge rejected Homag Canada's request to repossess four recently installed machines worth a total of approximately $1.1 million. The judge agreed with consultant company's argument that removing the equipment for which Homag Canada is reportedly owed $500,000 would be detrimental to finding a buyer for the plant.

Green Hunt Wedlake says it has received three serious inquiries, including one by Thorn. But as the bid clock continues to click toward the July 22 auction deadline, the CAW says it will seek succession rights  in the event the plant gets a new owner and will stick to its guns in not accepting wage and benefit concessions.

That pronouncement, assuming the new owner would be obligated to hire back laid off union workers, would appear to be extremely problematic for Thorn or a any other new owner of the Scanwood plant. What's more, in its seven-year existence, the plant has had only one customer -- IKEA, which is notorious for expecting its vendors to lower prices.

From the Green Hunt Wedlake videos I've seen on YouTube of inside the220,000-square-foot plant, it's obvious that the facility is modern and laden with newer technology. The ultimate sale price, if one is reached, might even turn out to be a bargain on the face of it. But clearly any new owner will have to give serious thought to how to move the company forward without being caught between a rock (IKEA) and a hard place (the unions) to have any chance of making a go of it. 

One would think that Thorn, recent president of Scanwood, has an idea or two for righting the ship. The obvious question is what those ideas might require of its crew, with the CAW pretty much saying that laid-off workers might very well prefer to stay unemployed rather than accept cuts that might make the difference of the pontential new Scanwood's profit or loss.

Stay tuned.

Related Scanwood Canada articles on Woodworking Network
IKEA supplier declared insolvemt
(Posted 2-2-11)

Scanwood gets $1M loan, ex-manager sues (Posted 3-2-11)

IKEA supplier Scanwood to liquidate assets (Posted 5-15-11)

Homag equipment at Scanwood to stay put, judge rules (Posted 6-6-11)


Read more of Rich Christianson's blogs.

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