Hudson’s Bay is appearing before the Ontario Superior Court of Justice in Toronto on Monday, where a judge is expected to decide whether the company could initiate a full liquidation immediately to avoid bankruptcy.
The oldest company in Canada is proposing to liquidate its entire business including nearly $415 million worth of inventory at all of its 96 retail stores across the country later this week if it is unable to secure additional financing. The process could last about 10 to 12 weeks, according to the company counsel, and could start as soon as Tuesday.
“While the applicants remain hopeful that a restructuring solution may still be identified” to allow for continued operation, stated Hudson’s Bay in court documents, “the only interim financing that the applicants could secure requires an immediate inventory liquidation.”
“The company’s efforts have failed,” said Hudson’s Bay counsel Ashley Taylor in court Monday, after trying to seek additional financing from 19 potential lenders over the past week and negotiating with landlords on rent payments. The retailer will “preserve any chance there is” to restructure and avoid a shutdown, he added.
The retail stores will remain open and operational until the final closing date, along with e-commerce sales, if the court approves the liquidation.
During the court hearing Monday, the company filed a motion to continue suspending the payment of rent to RioCan-Hudson’s Bay JV, its primary real estate subsidiary and joint venture with RioCan Real Estate Investment Trust.
“The applicants are facing a liquidity crisis,” court documents read. “The cash flow forecast does not contemplate Hudson’s Bay paying the full amount of rent.”
Counsel for JV challenged the motion, arguing that occupation rent for the Hudson’s Bay retail spaces owned by the joint venture exceeds that of all other stores combined and should be paid as soon as possible. Hudson’s Bay operates 12 retail stores in premises leased or subleased to it by RioCan-Hudson’s Bay JV and its subsidiaries.
“People need to be paid for their services being provided,” the JV counsel said, adding that significant cash flow could come in if the liquidation proceeds and would support rent payments.
While Hudson’s Bay is preparing to close all its stores, it retains the right to remove some stores from the liquidation list if the company can secure a deal and gain permission from its debt lender.
The company, founded in 1670, was in a dire financial situation when it filed for creditor protection under the Companies’ Creditors Arrangement Action in a bid to avoid bankruptcy on March 7. As of Jan. 1, the company had only about $3 million in cash on hand, $1.13 billion in secured debt, and owed its nearly 1,900 unsecured creditors — such as brands, governments and landlords — about $450 million.
Most of the 9,000 workers employed by Hudson’s Bay and its banner retailers — Saks Fifth Avenue and Saks OFF 5TH — could face layoffs if the company goes into the liquidation phase. The company plans to retain about 121 key employees during the final period before shutting down and expects to pay a cumulative $2.7 million, the court document shows.
For restructuring industry observers like Dina Kovacevic, editor of Insolvency Insider newsletter, the move by Hudson’s Bay to seek creditor protection was not entirely surprising.
“We at Insolvency Insider have been tracking insolvencies for the last several years and in the post-COVID period, retail companies have been struggling from decreased foot traffic, there has been increasing interest rates, supply chain issues in the wake of COVID, etc.,” she told the Star last week, noting that consumer shopping habits have changed in recent years.
“For bigger companies like HBC especially who have really expensive leases being anchor tenants in malls, it’s very difficult to pay creditors, including landlords, when they’re not making as much as they used to.”
She pointed to other retail companies that have experienced restructurings in recent years, such as The Body Shop and Mastermind Toys.
This is a developing story.
