Lush seeks court approval to dissolve company's Canadian arm

Lush in heated court battle

Continuing conflict between the U.K.-based owners of the Lush Cosmetics brand and their Vancouver-based partner, Mark Wolverton, has prompted the retailer to ask the BC Supreme Court to step in and settle the dispute. 

If a judge does not grant the requested orders, Lush wants a court order that “it is just and equitable to liquidate and dissolve Lush Canada” – a profitable venture with declining but substantial sales.

Lush Canada’s sales fell almost 10.9% to $278.7 million in 2019 from $312.7 million two years earlier, Lush said in its petition. Profit plunged more than 73.4% to $15.9 million in 2019, compared with $59.9 million in 2017, the petition states.

The dispute between Wolverton and Lush Canada’s parent company comes nearly 25 years after Wolverton, wife Karen Delaney-Wolverton and a few other partners opened Lush’s first store outside the U.K., on Vancouver’s Denman Street. 

The Wolvertons then, in partnership with Lush, and through a separate corporate entity, opened Lush’s first American store, in San Francisco, in 2003. The Wolvertons then oversaw Lush’s expansion to 53 stores in Canada, and 215 stores in the U.S.

The U.K.-based parent did well with other partners too, as it expanded the Lush brand to 48 countries and 900 stores.

Fractious relations between Lush and Mark Wolverton, however, came to light in a July 7 lawsuit Lush filed in Las Vegas. Lush alleged financial mismanagement by Wolverton while he oversaw Lush’s American and Canadian operations, and accused him of funnelling money from Lush’s U.S. operations into Lush Canada.

Lush also alleged that Wolverton would not let a U.S. director view the company’s U.S. financial documents because operations were co-mingled with those in Canada, and she was not a director in Canada.

Wolverton denies Lush’s assertions and says there had been a longstanding cost-sharing agreement between the U.S. and Canadian Lush companies. 

“In Canada, Mr. Wolverton has rejected Lush’s brand decisions and input into corporate decisions. Mr. Wolverton’s pattern of conduct and behaviour demonstrates his intent to exclude Lush from the business and to exclude Lush Canada from the benefits of Lush’s global brand and expertise,” Lush said in its petition to BC Supreme Court.

Lush wants the court to issue an order that Lush Canada’s board of directors lacks its needed quorum, and that directors and shareholders are “deadlocked,” entitling Lush to relief under the province’s Business Corporations Act. 

The board’s paralysis is so severe that necessary tasks, such as appointing a new chief financial officer, is impossible because a shareholders’ agreement stipulates that board approval is required, the petition states.

Lush claims that Wolverton had board directors agree to grant him with “wide-ranging authority” to control Lush Canada operations. Lush essentially wants a judge to rescind that vote. 

Lush claims that it tried multiple times to successfully nominate a qualified female director to the board, but each time Wolverton refused to accept the appointment.

Wolverton’s suggestions for a director were White men, something that Lush did not want because it wanted the board to have a diverse composition, according to the petition.

If the court does not order a solution to the board stalemate, Lush said that it wants the court to either order that Wolverton be removed from the board, that Lush is able to buy all of Wolverton’s shares in Lush Canada or that Lush Canada be dissolved.

“I strenuously deny the allegations being made against me in the recently filed petition by Lush UK. The matters being raised in this filing relate to an internal and ongoing shareholder dispute, not to the health or viability of our business. I remain committed to the North American business, to our passionate employees and our loyal customers," said Wolverton.

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