Following an initial creditors meeting, more information about the bankruptcy of Canusa, the parent company of Robert Kennedy Publishing, has emerged.

A preliminary report from the trustee Deloitte & Touche listed reasons for the bankruptcy and clarified what parts of the health and fitness magazine and book publishing business are included in the bankruptcy.

The report says a number of factors contributed to the fall of the company, including:

  • the illness and death of founder Robert Kennedy in April 2012
  • unfavorable industry trends for printed magazines
  • the cost of a settlement of a dispute in early 2013 with a significant advertiser
  • lower than expected renewals of subscriptions due to a difficult transition to a new subscription service provider in early 2013
  • costs related to the closure of a retail venture for Muscle Mag International
  • commitment to a significant lease for a large distribution centre in Mississauga, Ont.. which was significantly in excess of current corporate needs
  • significant distributions to Robert and Tosca Kennedy relative to recent cash flow and profitability

Canusa published five magazines but only owned Reps and American Curves when Tosca Reno, Canusa’s sole director, filed for the company’s bankruptcy on June 7. According to the report, the Canadian trademarks for Oxygen and MuscleMag International are held in the estate of Robert Kennedy, who left his wife Tosca Reno, a diet and fitness guru and author, in charge of his publishing business. Clean Eating and some other U.S. and Canadian trademarks are held by Tosca Reno Media Inc. (recently renamed, previously Robert Kennedy Publishing Inc.) These entities are not bankrupt. The report notes that an "en bloc sale of the book and magazine properties is impaired by virtue of the fact that the most valuable brands and trademarks are not owned by the Company...."

In the blog post Reno used to announce the closure of the company, Reno said she was “forced to make the decision to restructure the business as a whole in order to allow our brands Oxygen, Clean Eating and The Eat Clean Diet to possibly find a new home, where my hope is they can thrive again.”

The book publishing division had 52 active titles, many of which were authored by Robert Kennedy or Tosca Reno. The trustee’s report says there appears to be only five written agreements for those titles. A former employee told PW that the book publishing operation was shut down months before the bankruptcy with the exception of Reno’s own books.

The report says there are obstacles to selling the book division en bloc, including reversion of authors’ rights, payment of royalties on ongoing sales and copyright issues.

The book inventory consists of 150,000 units housed by Canusa’s consignment customer National Book Network in the U.S. The inventory is estimated to be worth about C$550,000 in net book value. There is approximately C$533,000 in accounts receivable due from NBN, but the report notes that that could be significantly eroded by returns. It also notes that if a title is non-active, then retailers can return the book within 12 months. There are also 40,000 unitis at its Mississauga facility.

There were 96 employees, and Deloitte estimates the value of their claims for wages is C$164,000.

Other creditors with significant claims include:
Orlando Corporation (landlord)
Printer and distributor Quad/Graphics Inc. claiming US$2.3 million
Paper supplier Gould Paper Corp, claiming US$950,000
Subscriber service CDS Global, claiming US$151,000
Approximately 218,000 subscribers who may have prepaid their digital or magazine subscriptions. Canusa’s records indicate this liability may be as high as C$2.5 million.

The report also notes that there are a number of transactions that require further review including deemed dividends that were declared to eliminate Robert Kennedy’s shareholder loan balance of approximately C$1.1 million as of the date of his death. In addition, the shareholder loan receivable from Tosca Reno is approximately C$490,000 as of the date of bankruptcy.

As rent for Canusa’s facility is C$75,000 per month, the trustee’s report says it is important to sell the equipment and furniture quickly. An auction is scheduled for July 23 at 10:30 am.