Freshstone: a material adverse change, a week after the reverse vesting order

The schedule reached the monitor on October 20. It set out the aged post-filing accounts payable of Freshstone Brands Inc. as at October 17: 125 creditors owed a total of $2,050,958, of which $1,414,975 was past due, according to the Fifth Report of Deloitte Restructuring Inc., the monitor in Freshstone's proceeding under the Companies' Creditors Arrangement Act. On October 21, the report says, Freshstone confirmed to its interim lender, Garrington Financial Services Inc., that an event of default had occurred under their DIP credit agreement, per the Fifth Report of the Monitor, Oct. 21, 2026, paras. 3, 17–18. The report, dated the same day, is filed "in accordance with section 23(1)(d)(i) of the CCAA to inform the Court that the Monitor has ascertained a material adverse change in the Applicant's projected cash flow or financial circumstances," per the Fifth Report of the Monitor, Oct. 21, 2026, para. 6.

On October 14, Justice W.D. Black of the Ontario Superior Court of Justice (Commercial List) had granted the approval and reverse vesting order for Freshstone's subscription agreement with Frank Burdzy, its chief executive and a secured creditor, who is the Investor under that agreement. The order, reported here on October 15, also extended the stay of proceedings to November 30, 2026, per the Approval and Reverse Vesting Order, Oct. 14, 2026, paras. 2–3 and the Fifth Report of the Monitor, Oct. 21, 2026, paras. 4(b) and n. 1, 5. The extension, the judge's endorsement says, "is necessary to accommodate the closing of the Transactions," per the Endorsement of Justice W.D. Black, Oct. 14, 2026, para. 8(k). On October 21, the monitor wrote that as a result of the material adverse change, in its view, "there is significant uncertainty as to whether" the transactions will close and whether post-filing liabilities will be paid, per the Fifth Report of the Monitor, Oct. 21, 2026, para. 14.

Lost customers, smaller orders and raw materials

The report names two of the factors behind the change: "A significant reduction in actual and projected sales volumes" and "A failure to pay certain post-filing liabilities as and when due," per the Fifth Report of the Monitor, Oct. 21, 2026, para. 13. The account of the sales comes from Freshstone's management, which has made the monitor aware, the report says, that the company "has suffered a material reduction in actual and projected sales as a result of lost customers, reductions in order volumes from certain customers and the inability to fulfil orders owing to the inability to source sufficient raw materials as a result of cash constraints," per the Fifth Report of the Monitor, Oct. 21, 2026, para. 15. The report names no customer and puts no figure on the reduction.

"The reduction in sales volumes, together with the delay in the collection of certain accounts receivable has impacted the borrowing base calculation and restricted the amount available to borrow under the DIP Credit Agreement," the report says, and "Consequently, the Applicant has been unable to pay certain post-filing liabilities when due," per the Fifth Report of the Monitor, Oct. 21, 2026, paras. 16–17. Garrington agreed to advance up to $7 million, per the Fifth Report of the Monitor, Oct. 21, 2026, para. 3. As the monitor described the agreement in its pre-filing report of June 8, the revolving facility can at no time exceed the lesser of $7 million and the borrowing base then in effect, and all collections of accounts receivable are remitted to the lender weekly, per the Pre-Filing Report of the Monitor, June 8, 2026, paras. 32, 34. The agreement attached to that report sets the borrowing base at 75% of eligible accounts receivable, less a dilution reserve, plus the lesser of $1,000,000 and 25% of the book value of eligible inventory, minus a reserve for permitted priority liens, per the Pre-Filing Report of the Monitor, June 8, 2026, App. B, DIP Facility Loan Agreement, Sched. A, p. 53.

The monitor's previous report on the cash flow, its Third Report of September 15, recorded receipts of $3,122,000 for August 16 to September 5 against a forecast of $2,686,000, a favourable variance it described as "a permanent variance arising from higher than forecast sales." Freshstone's revised forecast of September 10, which management prepared, raised forecast receipts over the previous forecast, the Third Report says, "as a result of additional sales that have been made to various customers." Excluding advances and repayments under the DIP facility, it showed a net cash inflow of approximately $0.4 million for September 6 to November 28, and it assumed status quo operations with no closing of the transactions, per the Third Report of the Monitor, Sept. 15, 2026, paras. 16–19 and n. 2, App. A, n. 1.

A default, and a waiver requested

The event of default Freshstone confirmed to Garrington on October 21 arose, the Fifth Report says, "as a result of exceeding the Permitted Variance for two consecutive weeks as shown on the variance reports submitted to the DIP Lender on October 10, 2026, and October 17, 2026." Freshstone had requested a waiver, the report says, and "As at the date of this Report, no such waiver has been provided by the DIP Lender," per the Fifth Report of the Monitor, Oct. 21, 2026, para. 18. The report does not give the variances. An event of default occurs, the pre-filing report says, if Freshstone is not within the permitted variance for two consecutive one-week reporting periods. The agreement attached to that report defines the permitted variance as a negative variance from the DIP budget of up to 15% in the borrower's income and an adverse variance of up to 15% in its expenses, measured without the lender's own fees and expenses, in each case for a one-week period, per the Pre-Filing Report of the Monitor, June 8, 2026, para. 35, and App. B, DIP Facility Loan Agreement, Sched. A, p. 58. By a letter dated July 16, Garrington had waived an earlier default of the same kind, per the Second Report of the Monitor, Aug. 19, 2026, paras. 24–25.