DARTMOUTH, NOVA SCOTIA -- Scanwood Canada Ltd., which last month was declared financially insolvent, recently got a court OK to borrow $1 million to continue its restructuring plan.

Meanwhile, Scanwood's former production manager is suing the company, saying he was "constructively dismissed,' according to the Chronicle Herald.

Scanwood makes ready-to-assemble wood furniture, exclusively for IKEA, the world's largest furniture retailer.

The Chronicle Herald reported that Scanwood will use its $1 million operating loan from TCE Capital that was approved by Nova Scotia's Supreme Court to "ramp up production and keep about 220 people working at its Burnside Park plant."

The Canadian Broadcasting Corp. (CBC) said the court also granted Scanwood additional time to put together a plan to pay ultimately pay off an estimated $12 million it owes to suppliers and other creditors.

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."

Scanwood's loan request reportedly was opposed by lawyers for the Royal Bank of Canada and the Business Development Bank of Canada. Both financial entities expressed concern that not only would the loan be inadequate to adequately support operations and add to Scanwood's debt, but that it would reduce the company's potential assets if it liquidates.
Scanwood's contract with IKEA reportedly calls for the delivery of 900,000 chests of drawers per year.

Thorn told the Chronicle Herald that the $1 million loan will help it further its ongoing modernization plan that helped lead to the lay off of 14 workers on the day of the favorable court ruling. CBC said $4.5 million of that $6 million plan was loaned by the provincial government.
Next week Scanwood will ask the court for more time to come up with a plan to repay its outstanding debts.

Ex-Production Manager Sues
Edward Saulnier, Scanwood's former production manager, has filed a lawsuit alleging that the company demoted him to maintenance manager in January 2010 after blaming him for its financial problems.

The Chronicle Herald said Saulnier claims he was wrongfully dismissed and is seeking damages that include losses of salary and benefits, plus damages for mental suffering. 

Scanwood was originally established as Swedwood by IKEA. In 2004, IKEA sold the operation to Tommy Holmer, past President and CEO of Swedwood Canada Ltd..

Read  related blog: The Ups & Downs of Selling to a Big Box Store.

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