Ottawa Business Magazine
May/June 1991

On the rebound

How a bankrupt company bounced back

David Poupore clearly recalls the fateful day last December that changed his future. After several stressful months as chief operating officer for the bankrupt Morewood Industries Ltd., he was half resigned to its demise and half in disbelief that it would actually happen. As he drove with Bob Egan, vice-president of finance, to meet with the bankruptcy trustee, Poupore remembers feeling almost numb, calmly accepting the company's future and the bad news he expected to hear shortly. "There was a part of us that never believed it would close up and that would be it.... This place is too good an opportunity to pass by. But maybe it had been (passed by)," says Poupore, recalling his thoughts. The prefabricated home manufacturer was in receivership, nearly 180 employees had been laid off and about $11 million was owing to creditors. Although Peter Cleveland, the bankruptcy trustee from Ernst & Young, had tried to sell Morewood for several weeks, there was no white knight in sight.

But it wasn't more bad news that Cleveland was bearing that day. Instead, he offered them the possibility of an employee buyout deal. "We were a bit surprised. We thought we would be told that the end was in sight and that we were being let go," he recalls. After the meeting, the two discussed the proposal in a coffeeshop. And as the coffee flowed, so did their adrenaline. "Very quickly we had agreed we wanted to do this. We knew by that afternoon," he says. "We just had to get our heads around from being paid employees to being owners."

Like the phoenix rising from the ashes, Morewood is a classic story of a company that went belly-up and then re-surfaced several months later, reorganized with a new name and new management.

Up until 1990, Morewood had enjoyed success. The family business started in the village of Morewood by Dutch cabinet-maker Adrian Heuff after the Second World War had grown into a successful operation with a reputation for quality. At the height of its operations in 1989, Morewood employed about 325 people in its various divisions: Heritage Homes manufactured modular homes; Dutch Kitchens manufactured kitchen fixtures; Dutch Windows manufactured windows, and a retail store on Merivale Road, Dutch Windows and Kitchens, sold the goods. Heuff died in 1978, and the family sold the company to son-in-law Peter Lightfoot and another businessman.

In 1988, Morewood was sold again to a group of Toronto-area businessmen: Sid Cooper, Ephram Diamond, David McKee, Gerald Shear and Michael Shulman. Diamond and Shear were both founding partners of the hugely successful Cadillac Fairview Corp. The new owners had high hopes and big plans for the regional home builder. Morewood enjoyed one of its best years in 1989, when it sold 212 modular homes racking up total revenues of about $9 million. Another $6 million came in from the lucrative window division. (Dutch Kitchens was phased out that year.)

Morewood's troubles started last year when sales started to drop while interest rates remained high – a crippling combination in the building business. The year before, the Toronto owners decided to finance a massive $3-million expansion of the company headquarters with borrowed money. When the owners began to build, the economy still looked good. But by last October, Morewood had only managed to book orders for 94 homes for the year. Foundering under debt, the company went into receivership.

But despite Morewood's problems, Cleveland realized it was still a viable business. "The fundamental problem could have been isolated to interest rates and overexpansion....buried in the ashes was a good company." He was able to cut overhead costs and to continue operating the company to complete 12 orders worth about $1 million. After several weeks of trying to sell the revitalized firm, he approached a group of former employees to discuss a possible buyout. "Turnarounds require a lot of drive and people have to be committed," says Cleveland, explaining his decision to offer to sell to employees. "They had the skills to run the company and the heart to save their jobs, so it was a good combination."

Six former employees, including Poupore, put together a package that was bought by the creditors and the banks. The new owners refuse to disclose the price tag or funding arrangements, except to say that the Bank of Commerce has supported their buyout and the Eastern Ontario Development Corp. has guaranteed their operating loan.

The new company, Guildcrest Building Corp., opened its administrative and sales doors in January with 25 employees. The new owners plan to sell the windows division, concentrating instead on the modular-home market. As president of Guildcrest, Poupore hopes to have at least 50 workers on staff when the company starts shipping homes in June.

So far, the prospects look good for Guildcrest. With interest rates dropping and consumer confidence on the rise, the home-buying market has been heating up. Poupore has projected gross sales of $4 million to $4.5 million for 1991, as predictions for an early economic upswing abound. He's careful to curb his optimism, realizing that the first year will still be rough. But he adds, "We may look back in a year and say, 'Yeah, our timing was terrific.'"

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