Crunch Fitness ruling gives local gym owners runway to reopen

The financial troubles facing Crunch Fitness appear to be over for now, giving the company more runway as it moves toward reopening later this summer.

As reported last week by CambridgeToday.ca, in March, the Bank of Montreal applied under the Bankruptcy Protection Act to place the company into receivership due to over $1 million in unpaid debt.

The owners of the Crunch Group, which includes two Cambridge gyms, among 14 others in southwestern Ontario, came to an agreement with the bank to adjourn the receivership application while the company attempted a restructuring that involved buying back a portion of its debt for a minimum agreed price.

But during the process, Richter and Associates, the firm hired to monitor the restructuring process, accused Crunch Group of funding a portion of its debt using membership fees charged during the recent provincial lockdown.

Several local members expressed concern their monthly membership dues were being taken out of their accounts and charged to credit cards while the gyms remained closed.

Crunch maintained the membership fees were charged in error due a changeover in billing software. 

But in an agreed statement of facts filed by Richter, Crunch Group admitted to using some of those funds, along with federal rent subsidy money, as short-term loans to fund its debt purchase.

It appears some membership fees have since been refunded to local members.

The lawyer acting on behalf of Crunch Group said the transfers were to secure the operation, protect 500 jobs and provide the necessary capital to go forward. 

Richter called it “misappropriation” that breached an appointment order issued by the court.

But none of that detail was addressed in a decision rendered on June 8, closed June 11, and finally made public last week.

Judge. S. F. Dunphy concluded that a bid by the Crunch Group must be accepted by the Bank of Montreal to allow the restructuring of its debt to proceed.

The bank had disputed the timing and amount of the Crunch offer in relation to another bid, and much of Dunphy’s decision delves into the reasons why the bank was being unfair by not allowing it to proceed.

“The Bank’s lack of flexibility and willingness to compromise on an issue that could easily be addressed with no risk whatsoever to the Bank leads me to conclude that the Bank was consciously or unconsciously trying to free itself from the Agreement it made,” he wrote.

At the outset of his ruling, the judge offers sympathy to the club owners in rendering his decision.

“It will escape the attention of none that fitness clubs have been among the hardest hit businesses by the variety of lock-downs and closure orders issued by the Government of Ontario in connection with the pandemic.” he wrote.

“These motions come just as it appears that a thaw in the lockdown may permit cautious optimism that the fitness clubs will be given permission to open and help Ontarians shed their Covid pounds.”

Crunch Fitness has not responded to requests for an interview.