Second Cup: the brand outside Canada goes to the shareholder that filed

In May 2025, The Second Cup Coffee Company Inc. rented the first floor of 12 Bruce Park Avenue in Toronto for about $4,611.25 a month in base rent and from there franchised the Second Cup Café name to franchisees running some 170 cafés in about 20 countries, among them Pakistan, Egypt, Azerbaijan and Cyprus, and across sub-Saharan Africa. The company "owns or controls the 'Second Cup Cafe' brand and rights globally, outside of Canada," and "does not have any Franchisees or corporate-owned cafes located in Canada." Its franchisees paid it royalties and bought supplies from it, coffee beans and powders for flavoured drinks among them, and those two streams formed "the vast majority" of its revenue, according to the affidavit that began its CCAA proceeding, the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 16–18, 26–27.

That affidavit was affirmed for a creditor. On May 22, 2025, Justice Cavanagh of the Ontario Superior Court of Justice (Commercial List) made an initial order under the CCAA on the application of Arbat Capital Group Ltd., an investment manager incorporated in the British Virgin Islands and based in London. Arbat held 40% of Second Cup's shares and was its largest creditor, owed over US$3,753,006.83 and £840,810.95 on an unsecured basis as of May 16, 2025, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 1–3, 23. Arbat also provided the interim financing, served as stalking horse and won the auction. Its reverse vesting transaction closed on March 2, 2026, with every existing share cancelled and new ones issued to Arbat, and the monitor, Grant Thornton Limited, has moved to end the proceeding at a hearing set for March 24, per the Golubovich Affidavit, Jan. 26, 2026, para. 16 and the Factum of the Monitor, Mar. 19, 2026, paras. 12–13.

Loans for cafés in Britain

Each of the four shareholders could appoint one director. Arbat held 3,000,000 Class A and 1,000,000 Class B shares and put one of its own directors, Alexey Golubovich, on the board; he affirmed the affidavits quoted here. Park Investors LLC held 2,000,000 Class A shares and appointed the board's chairman, Maxim Lojevsky. An individual investor held the other 1,000,000 Class B shares, and a fourth shareholder, himself a director, held 3,000,000 Class A. The affidavit calls the first three the Majority Group: 70% of the shares, and over C$9,000,000 owed to them, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 2–3, 15, 20–22, 109.

The oldest of that debt dates from June 2018, when Arbat lent £400,000, and Park and the individual investor £300,000 each, at 16% a year, to buy assets for Second Cup cafés "to be opened in the United Kingdom." Each loan was to be secured by shares of a UK subsidiary "to be incorporated." The subsidiary never was, and the affidavit calls Arbat's sterling loan "in effect, unsecured." No payment was ever made on Park's or the individual investor's loan, each of which stood at about £630,608.21 with interest by May 16, 2025. A further Arbat loan of US$2,000,000, made in 2019 at 10% and secured by a pledge of 1,666,667 of the fourth shareholder's Class A shares, had about US$3,753,006.83 owing after payments of about US$31,369.86, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 52–61, 69–73.

The applicant's account

The reasons for going to court are Arbat's account, affirmed by a director who said Arbat had "limited visibility" into the company's assets and liabilities. By that account, the company told Arbat on July 11, 2024 that it had no ability to repay. Mr. Lojevsky went to Toronto in September to look at the books and reported back that the company had no cash and a fully drawn line of credit; the Majority Group learned then, for the first time, that the auditor had not been paid. Arbat's offer of October 3, 2024 would have extended maturities and cut the interest payable for 2025 from 16% to 1% a year, with no conversion to equity, but no terms were agreed. Demands followed on December 3, with notices under s. 244 of the Bankruptcy and Insolvency Act to the fourth shareholder over the pledged shares, and a week later the company confirmed again, in writing, that it could not repay, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 29, 78–84.

The auditor, Raymond Chabot Grant Thornton LLP, resigned on March 7, 2025, the affidavit says, after the Majority Group had paid its fees. Through the auditor, in February, the Majority Group "first learned that the Company's source deductions have not been remitted to the CRA since 2021"; on May 1 it learned that about C$400,401 was owing as of February 3. The bank statements showed C$425.91 and US$4,803.73 in the company's accounts on March 31 and April 17, 2025, respectively. The directors' and officers' insurance had lapsed, the director of finance had resigned in early May, and there was not enough cash for the payroll due May 23, one day after the application's return date. "The Majority Shareholders and Directors, who are also the Majority Creditors, have lost faith in the Company's ability to repay the Majority Group Loans, which are due, along with the source deductions and payroll, without a restructuring," Mr. Golubovich wrote in the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 33, 75–76, 85–90, 143.

The Bank of Montreal, one of two secured creditors on a personal property search, had $760,252.08 owing on a $750,000 revolving line at November 29, 2024, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 44–47, 49.

The applicant as lender

Justice Cavanagh's initial order appointed Grant Thornton Limited as monitor and Mr. Lojevsky as chief restructuring officer, stayed proceedings to June 1, 2025, and granted a $275,000 administration charge, a $100,000 directors' charge and a $200,000 charge securing interim financing from Arbat, per the Golubovich Affidavit, Aug. 15, 2025, para. 8. Grant Thornton had advised the board before the filing and is, the affidavit notes, legally separate from the auditor that resigned. The affidavit's summary of the DIP term sheet gives 9% interest and a $4,000 commitment fee "as security for the high risk and speculative DIP Loan." Arbat had not canvassed the market for another lender. "The DIP Loan creates risk that Arbat is spending good money to recover bad debts," Mr. Golubovich wrote. As he did not expect the fourth shareholder to countersign the term sheet, the proposed order would authorize the CRO to sign it for the company, per the Golubovich Affidavit, May 19, 2025 (Exh. B), paras. 102–103, 132–134, 137.

A week later the amended and restated initial order extended the stay to August 28 and raised the administration charge to $500,000, the directors' charge to $220,000 and the DIP to $900,000; a claims identification order set a process to find the claims against the company and its directors, per the Golubovich Affidavit, Jan. 26, 2026, paras. 8–9. By then the DIP was "the Company's only available source of funding," per the Golubovich Affidavit, May 27, 2025 (Exh. C), para. 35.

A stalking horse from the applicant

On August 21, 2025, Justice Osborne approved a sale process to be run by the monitor and Arbat's stalking horse subscription agreement; a second order extended the stay to November 7 and raised the DIP to $1,500,000, per the Notice of Motion, Jan. 26, 2026, paras. 7–8. The stalking horse was a reverse vesting transaction. Arbat would subscribe for 100 new common shares, every existing share would be cancelled "without consideration," and the liabilities the agreement did not retain would vest in a residual company. Its price was a formula: the DIP debt and the BMO debt, both to stay with the company as retained liabilities, plus a cash closing payment to the monitor covering the priority payments prescribed under s. 6 of the CCAA, the administration charge and up to $50,000 to wind down the residual company. Any unused portion of the closing payment would be returned to the purchaser. If another bid won, Arbat would be paid a $150,000 break fee, per the Stalking Horse Subscription Agreement, Aug. 15, 2025 (Exh. E), ss. 1.1, 2.1–2.3, 3.1–3.3, 4.1(b). The stalking horse, Arbat told the court, would "ensure that Second Cup emerges from these CCAA proceedings as a going-concern enterprise," per its Notice of Motion, Aug. 15, 2025, para. 19.