An Ontario Superior Court judge has rejected Hudson’s Bay’s restructuring plan that lawyers for landlords argued would give the embattled retailer’s senior lenders control over the company’s restructuring as it winds up most of its business.
Three major lenders of Canada’s oldest company had sought court approval this week for an agreement they signed with the retailer, but faced pushback from lawyers representing landlords and employees on Thursday.
Superior Court Justice Peter Osborne wrote in court filings that, while there are “positive attributes” to the proposed restructuring framework agreement, “on balance,” it “is neither necessary nor appropriate at this time for a number of reasons.”
The proposal was intended to maximize liquidation proceeds and recover some of the millions owed to senior lenders — Bank of America, Pathlight Capital and Restore Capital — while providing room for the company to restructure.
The proposal outlined restrictions on how Hudson’s Bay can use its cash, and requires the retailer to liquidate the six stores it wanted to keep open if a solution to save its business is not reached by April 30. On Thursday, Restore Capital agreed to an extension of the original April 7 deadline.
It was not a “very satisfying outcome for the company,” Ashley Taylor, a lawyer for Hudson’s Bay, told the court on Wednesday. “The company wanted more time and more latitude to find a solution, but that was the best that we could negotiate at the time.”
Taylor added he understood the centuries-old company is using the lenders’ collateral to fund its restructuring attempts, and a shortfall is already expected in paying down the debt at the end of the liquidation sale.
Osborne heard arguments from lawyers representing landlords and employees who worry that the two-week countdown is too tight to secure potential buyers or investors for its six stores and this agreement would “kill the chances” for Hudson’s Bay to explore restructuring opportunities.
“What (lenders) want is monetization of their collateral. They want the liquidation. They want a realization. Again, they’re entitled to that,” said David Bish, a lawyer for Cadillac Fairview, opposing the restructuring agreement. “But why a restructuring support agreement for parties that don’t support restructuring?”
Bish said one of his main concerns is a provision that prevents Hudson’s Bay from seeking, agreeing to, or failing to oppose any court motion that approves a restructuring deal differing from the one outlined by the lenders — a deal that mandates full repayment of their secured debt.
Andrew Hatnay, a lawyer representing some Hudson’s Bay employees and retirees, also challenged a provision of the restructuring proposal that prevents the company from paying fees for any party’s legal, financial or other advisers.
Because of that, employee lawyers may make claims to the company later for counsel fees.
Hatnay told court the agreement should not prohibit legal representation for the soon-to-be terminated 9,400 HBC employees, disabled employees and the larger Hudson’s Bay retiree population.
Senior lenders told Osborne they might apply for a court-appointed receiver to take control of some or all of HBC’s assets to repay creditors if the agreement is rejected — a move Bish called “distasteful” and akin to “threatening the court.”
“There’s a sign of bankruptcy,” Linc Rogers, a lawyer for Restore Capital said in response. “It was never a threat.”
With files from Hayden Godfrey
