The end could be near for Vancouver-based Lush Canada, a profitable company with declining but substantial sales.
Lush Canada’s sales fell nearly 10.9% to $ 278.7 million in 2019, from $ 312.7 million two years earlier, Lush said in his petition. Profits plunged more than 73.4% to $ 15.9 million in 2019, from $ 59.9 million in 2017, the petition says.
According to Wolverton, sales likely plunged deeper during the pandemic.
He sent BIV a statement saying that “widespread store closings” took place in March, along with significant layoffs of staff and cuts in management wages.
The dispute between Wolverton and Lush Canada’s parent company comes nearly 25 years after Wolverton, his wife Karen Delaney-Wolverton and a few other partners opened Lush’s first store outside the UK, on Denman Street in Vancouver.
The Wolvertons, in partnership with Lush, and through a separate company, then opened Lush’s first US store in San Francisco in 2003. The Wolvertons then oversaw Lush’s expansion to 53 stores in Canada and 215 stores in the United States.
A significant expansion in recent years has taken place at 1020 Robson Street in Vancouver, where the Lush store has grown from 1,400 to 2,800 square feet by occupying space to the east, which was a Danier Leather Inc. store.
The UK-based parent company has also done well with other partners, as it has expanded the Lush brand to 48 countries and 900 stores.
A broken relationship between Lush and Mark Wolverton, however, came to light in a July 7 lawsuit that Lush filed in Las Vegas. Lush alleged Wolverton’s financial mismanagement while overseeing Lush’s US and Canadian operations, and accused him of funneling money from Lush’s US operations to Lush Canada.
Lush also alleged that Wolverton would not let a US director see the company’s US financial records because the operations were intertwined with those in Canada and she was not a director in Canada.
Wolverton sent BIV a statement filed in the Nevada lawsuit that refuted Lush’s claims, explained that there was a long-standing cost-sharing agreement between Lush’s US and Canadian companies, and said he had sent “oars” of requested documents to the American director of Lush.
The dispute, however, has spread to the north, with Lush’s petition in British Columbia exposing similar concerns about Lush Canada.
“In recent years, Mr. Wolverton has become uncooperative and difficult,” Lush said in his petition to the BC Supreme Court.
“In Canada, Mr. Wolverton has rejected Lush’s brand decisions and his contribution to corporate decisions. Mr. Wolverton’s model of conduct and behavior demonstrates his intention to exclude Lush from the business and exclude Lush Canada from the benefits of Lush’s global brand and expertise.
Lush wants the Supreme Court of British Columbia to issue an order stating that the board of directors of Lush Canada does not have the necessary quorum and that the directors and shareholders are “deadlocked”, which gives him right to relief under the Province’s Business Corporations Act.
The board paralysis is so severe that necessary tasks, such as appointing a new chief financial officer, are impossible because a shareholders’ agreement stipulates that board approval is required, according to the petition.
Lush claims that hours before the board fell into this abyss, Wolverton had the board directors agree to grant him “broad power” to control Lush Canada’s operations. Lush basically wants a judge to overturn that vote.
Lush Canada’s board is expected to have two directors, the petition says. Currently Wolverton is the sole director and Lush believes he has the right to influence the selection of the second director, given that he and Wolverton each have similar substantial minority stakes in the company. (Others named in the petition have negligible holdings.)
Lush says he made several attempts to successfully appoint a qualified director to the board, but each time Wolverton refused to accept the appointment.
Wolverton’s suggestions for a director were white males, which Lush didn’t want because he wanted the board to have a diverse makeup, according to the petition.
Lush’s latest favorite principal is June Francis, associate professor of marketing at the Beedie School of Business at Simon Fraser University.
Lush wants the court to order Francis to be appointed to the board, or the court to order Lush’s other leadership candidates approved.
If the court does not order a solution to the board’s deadlock, Lush said he wanted the court to either order Wolverton removed from the board, or Lush to be able to buy all of them. Wolverton’s shares in Lush Canada or that Lush Canada be dissolved. .
Wolverton sent a statement to BIV saying:
“I strongly deny the allegations made against me in the recently filed petition by Lush UK. The issues raised in this case relate to an internal and ongoing shareholder dispute, and not to the health or viability of our business. I remain committed to North American business, to our passionate employees and loyal customers.
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