Hudson’s Bay is proposing to initiate a full liquidation of all of its 96 stores as early as Tuesday, putting some 9,000 jobs on the chopping block, if an Ontario court approves the company’s plan.
The oldest company in Canada spent Monday at Ontario Superior Court in Toronto to discuss its plan to liquidate its entire business — including 80 Bay stores, three Saks Fifth Avenue stores and 13 Saks Off 5th stores, and nearly half a billion dollars worth of inventory — if it is unable to secure additional financing. The process could last about 10 to 12 weeks, according to company lawyers.
A decision on Hudson’s Bay’s proposal could come as early as 2 p.m. Tuesday when Superior Court Justice Peter J. Osborne expects to hear from the company and other stakeholders about whether they were able to come to an agreement on key issues raised during Monday’s hearing.
“It has been a lengthy day to put it mildly and it is going to be a longer night as well,” Justice Osborne said at the end of the day.
One point of contention is Hudson’s Bay’s request to continue to pause its rent payments to RioCan-Hudson’s Bay JV, a joint venture it has with RioCan Real Estate Investment Trust. Hudson’s Bay operates 12 retail stores in premises leased or subleased to it by RioCan-Hudson’s Bay JV and its subsidiaries.
The court also heard opposition from a group of Hudson’s Bay employees and retirees, who argued the company should not be liquidated and that the process should be delayed by one week to allow further negotiations with stakeholders, such as landlords, to prevent the company from shutting down.
“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 secure 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.
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 debtor-in-possession lender.
A week ago, the company secured $16 million in debtor-in-possession (DIP) financing — a form of capital companies can seek for restructuring — from lender agent ReStore Capital, and now wants to raise that amount to $23 million if it gets court approval.
The court documents also say that customers will be able to use remaining gift cards in stores until April 6 during the proposed liquidation process, but Hudson’s Bay’s loyalty program will remain suspended.
The Hudson’s Bay Company (HBC), founded in 1670, was in dire financial straits when it filed March 7 for creditor protection under the Companies’ Creditors Arrangement Act in a bid to avoid bankruptcy. As of Jan. 1, the company had 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 $520 million.
Hudson’s Bay cited “significant” challenges including trade-war tensions with the U.S., post-pandemic drops in downtown store traffic and other economic headwinds.
Most of the 9,000 workers employed by Hudson’s Bay and its banner retailers could face layoffs if the company goes into the liquidation phase. The company plans to retain 121 key employees during the final period before shutting down and expects to pay them a cumulative $2.7 million, the court document shows.
Joseph Pasquariello, a lawyer for the RioCan-Hudson’s Bay joint venture, challenged the motion that will let the retailer keep suspending its rent payments to the 12 retail stores his client owns, arguing that “occupation rent” for the joint venture’s properties exceeds that of all other stores combined and should be paid as soon as possible.
“People need to be paid for their services being provided,” Pasquariello told the court, adding that significant cash flow to support rent payments could come in if the liquidation proceeds.
He also criticized ReStore Capital for pushing the motion to prioritize its debt over others.
“They don’t have an interest in this company being continued … That’s why they’re enforcing and asking the company to liquidate all the stores today,” Pasquariello said.
Justice Osborne was quick to point out that ReStore Capital was “the only lender who stepped up with anything.”
Andrew Hatnay, a lawyer representing some Hudson’s Bay employees and retirees, told the court Monday that employees do not want the company to be liquidated.
“We have been struggling with these employees and retirees who contacted us over the past week who are dismayed that the employer is moving so rapidly,” said Hatnay, adding that the liquidation could result in one of the biggest mass terminations in Canada since that of Sears Canada in 2017.
“Our position is that liquidation should not occur,” said Hatnay.
For restructuring industry observer Dina Kovacevic, editor of the 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, 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 and suppliers, 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, Cleo, Ricki’s and Bootlegger, and Mastermind Toys.
The retail stores will remain open and operational until the final closing date, along with e-commerce sales, if the court approves the liquidation.
The Canadian retail icon is still holding onto a sliver of hope that part of its intellectual property and some stores could survive through a sales process, as it continues to seek last-minute buyers or investors.
“Such offers will have to provide for repayment in full in cash of the amounts reasonably anticipated to be outstanding under the senior indebtedness” after the liquidation, said Hudson’s Bay’s chief financial officer Jennifer Bewley in the court documents. As of March 7, the senior debt was about $254 million.
