LONDON — Lush Cosmetics, the British brand known for its handmade products, natural ingredients, and commitment to sustainability and animal welfare, is ratcheting up legal action against its long-standing North American licensee with a lawsuit alleging obstructive behavior and financial impropriety.
Earlier this week the U.K.-based Lush Ltd. filed suit against Lush Canada and Mark Wolverton, who part-owns and operates the business, at Supreme Court of British Columbia, Canada in Vancouver, according to court documents.
Wolverton and his family introduced Lush to the Canadian market in the Nineties, opening a store in Vancouver in 1996. He later took on the management of the Lush business in the U.S. To date, there are 53 Lush stores in Canada, and about 215 in the U.S.
The Canadian lawsuit comes on the heels of a similar one that Lush Ltd. filed against Wolverton in the state of Nevada in August. Wolverton has stakes in Lush US and Lush Internet and serves as president, treasurer and secretary of those businesses.
According to the latest court documents, Lush Ltd. wants to remove Wolverton from the board of the company, purchase the shares it does not already own in Lush Canada and dissolve the business.
In the papers, Lush Ltd. points to a dispute with Wolverton about board member appointments, and the current “deadlock” on the board. The court papers accuse Wolverton of “improper conduct,” which has been “oppressive and/or unfairly prejudicial to Lush’s interests as a shareholder.”
The suit also alleges that Wolverton has been “improperly commingling” the financials of the Canadian and U.S. businesses and has conducted “improper” transfers of corporate funds from the Lush US Corporations to Lush Canada.
Lush Ltd. says that due to Wolverton’s actions, the company lacks the required quorum on its board of shareholders to conduct business and provide oversight of the management. Due to the board deadlock, it claims, Lush Canada is unable to appoint a new chief financial officer.
The documents also note that over the past six years, at least six individuals holding senior financial positions at Lush Canada and Lush US had resigned “within a matter of months.”
The suit also alleges that sales have been steadily declining both in Canada and the U.S., and that Lush Ltd. was concerned that Wolverton was financially mismanaging the company.
In 2019, Lush Canada generated sales of 278.7 million Canadian dollars and EBIT of 15.9 million Canadian dollars. That compares with fiscal 2017 when sales were 312.7 million Canadian dollars and EBIT of 59.9 million Canadian dollars.
In the U.S., 2019 sales were $386.4 million while EBIT was $42 million. By comparison, in 2017, sales were $463.5 million and EBIT, $86.8 million.
Lush declined to comment on the legal action. Wolverton could not be reached for comment at press time.
Lush Cosmetics was founded in 1995 by Mark Constantine, his wife Margaret Joan Constantine and a clutch of cosmetics industry veterans as an ethical, environmentally and socially conscious brand. It remains independent and owned partly by its employees.
Its bath bombs, face scrubs, soaps and creams are vegetarian with no preservatives and minimal packaging. Similar to the Body Shop, Lush was a start-up British beauty brand with a social conscience. It had long advocated for the environment, sustainability and animal welfare well before those causes became trendy.
In 2015, Lush opened a 9,500-square-foot space on London’s Oxford Street, its largest store globally. The three-floor space is filled with products with names such as Honey, I Washed the Kids soap bars; Jason and the Argan Oil solid shampoo, and a vegan fragrance called Death and Decay.
The wood in the store is either reclaimed or certified by the U.K.’s Forest Stewardship Council, while the LED lighting scheme is energy-efficient. The wall and floor tiles are made from 50 percent recycled content.