Lawyers representing Hudson’s Bay stakeholders received an “insider protocol” document on Thursday afternoon from the court-appointed monitor, suggesting there may be a relevant party to the business interested in bidding on some assets of the beleaguered retailer.
An insider could be a director, officer or other member of the management of Hudson’s Bay and a third party who has inside knowledge, such as lawyers and shareholders, said Tim Dunn, an insolvency lawyer.
The protocol, which governs how an “insider” could bid in the sales process for Hudson’s Bay’s leases, real estate and intellectual property, was established to “ensure the integrity and fairness” for all participants. Certain provisions are set in the protocol to prevent unfair advantage to the relevant person of the business who may receive assistance from some members of the company’s management in preparing or submitting their bids.
“It’s interesting because if an insider had approached the monitor to say, look, we are potentially looking at putting in a bid here, there would be no need for the monitor to do anything other than adhere to the rules of the insider protocol that was already established,” Dunn said.
“The fact that they felt the need to re-publicize, essentially what the inside protocol is, strikes me as being an attempt to address inquiries,” potentially from stakeholders asking if there’s an insider bid, Dunn continued.
He added that the protocol is “standard” in the bidding process and does not necessarily suggest such a bid exists.
The 355-year-old company filed for creditor protection on March 7, burdened with more than $1 billion in debt and just $3 million in cash earlier this year. The court has given the once-venerated retailer permission to liquidate its entire business, except for six stores, while it races through two parallel efforts to flip its leases for cash and reel in last-minute buyers for its stores and trademarks.
No one has publicly expressed interest in purchasing Hudson’s Bay stores except a B.C.-based billionaire, Weihong Liu. The Star first reported last week that Liu, chairwoman of shopping centre owner Central Walk, said she wants to buy “dozens” of stores on Chinese social media.
The past Monday was the deadline for any insider who wants to participate in the sales process to declare their intent. The protocol document was “shared for information purposes” and offers “no assurance” that an insider bid will be made, the court-appointed monitor wrote in boldface in an email to lawyers representing landlords on Thursday.
“Any time you have an insider who is prepared to participate in a sales process, they come to the table having a strategic advantage over third parties, simply because they are intimately familiar with the financial and other information of the company,” Dunn said.
While the protocol was in place to “level the playing field,” it could not overcome the inherent advantage of an insider, he added.
The protocol requires the insider to inform the monitor of the “affected management members” who will be assisting them in bidding on Hudson’s Bay properties and “from time to time update such list as necessary.”
These managers will be prohibited from communicating with other potential bidders unless they receive a written request or consent from the monitor, and face restrictions on accessing information not provided to other bidders, and knowing who has signed a non-disclosure agreement.
It’s required that the monitor or its lawyers be present for “substantive discussions” about a bid between the insider or company management and the financial adviser.
The insider, affected management members, and other potential bidders also need the monitor’s green light to directly negotiate with landlords and parties interested in licensing the company’s intellectual property or brands.
“Every effort will be made to adhere to the insider protocol, but the practical challenges of having an insider bid increased significantly,” such as in deciding the winning bidder, Dunn said.
Hudson’s Bay declined to comment, but in a statement to The Canadian Press, it said “no insider bid has been identified or confirmed, and these protocols are procedural protections that are common in any similar process.”
