Sears Canada retirees reach $ 48 million settlement

Retirees at Sears Canada Inc. abandoned their offer to recover all available money for the remaining creditors in the retailer's insolvency proceeding, but instead agreed to collect an estimated $ 48 million.

Sears pensioners had asked the court to give them priority over the value that would remain with the insolvent retailer – about $ 182 million as of December 1, according to this week's filings. But the court-appointed monitor overseeing Sears' creditor protection process objected to pensioners being allowed to speak first about the remaining funds, leaving other unsecured creditors with nothing.

In an agreement in principle with the Comptroller filed in the Ontario Superior Court of Justice this week, retirees agreed to no longer pursue a priority claim, known as an Alleged Trust. That could have generated more than three times the $ 48 million that they will have under the pact. But an alleged trust is a risky avenue involving potentially costly litigation, with no sure win, said Andrew Hatnay, a lawyer at Koskie Minsky LLP, who represents retirees.

"You never know if you have a dispute," Hatnay said in an interview. "There is very little margin for error. … we are talking about retirees. We would like to get it [money] in their hands as soon as possible. "

The pension issue has been a key part of the Sears process, highlighting difficult choices in an insolvency such as Sears, in which there is little money left to creditors with different interests, including former employees who are also creditors unsecured.

Nevertheless, Sears retirees are counting on another potential source of funds: a number of parties, including the pension administrator and the controller, plan to sue Edward Lampert, chief executive of Sears Holdings. Corp., which has itself collapsed under the protection of bankruptcy last month. in the United States – as well as Mr. Lampert's hedge fund, ESL Investments Inc., its affiliates and former members of the Sears Canada Board of Directors.

Mr. Lampert and his corporations, along with the former directors, are fighting to try to sue them and deny the charges against them.

The monitor's lawsuit, which the court will approve on Monday, is for a $ 509 million dividend that Sears Canada paid to shareholders, including Lampert and ESL, at the end of 2013. The dividend was approved "Under a substantially flawed process this has led to a substantial diversion of liquid badets to shareholders, largely benefiting insiders at the expense of creditors, while the company has inevitably started an insolvent liquidation in which substantial deficits for creditors are and would have must have been obvious, "says a FTI Consulting controller.

The Monitor stated that the decision to pay the 2013 dividend appeared to be influenced by major shareholders: Mr. Lampert, ESL, some of its affiliates and Sears Holdings; and two former directors of Sears Canada who had links to these shareholders. "These arm's length parties appear to have been motivated by liquidity pressures in the form of buy-back requests from ESL investors, which may have created an urgent need for cash provided by the 2013 dividend. "

Mr. Lampert's lawyers argue that after the $ 509 million dividend payment by Sears Canada in 2013, the retailer still had $ 513.8 million – more than cash after the sale. payment of a $ 101 million dividend a year ago not to be disputed.

In addition, as part of a rights offering in October 2014, the ESL parties paid approximately US $ 168.5 million to Sears Holdings in exchange for increased participation in Sears Canada, said counsel for Mr. Sears. Lampert.

Sears Canada sought court protection from its creditors in June 2017, after years of leadership changes, strategies and financial difficulties. Approximately 255 stores were closed earlier this year, leaving approximately 16,000 employees unemployed.

Lampert's lawyers say his accusers have had access to Sears Canada documents for months, while ALS parties have not had reciprocal access. And the lawyers said the ESL accusers did not obtain the waiver of Sears Canada's privilege over the documents on which their claims would be based.

Under the pension rules, retirees would receive approximately $ 48 million from a claim of approximately $ 650 million, or more than $ 19 million, if the claim had been calculated on the basis of the amount of their pension deficiency unfunded liquidation $ 260 million.

Mr. Hatnay stated that there were at least five legal actions planned or proposed against Mr. Lampert, his related corporations and former members of the board of directors. "There are others that are under discussion," he added.

Among the lawsuits filed by former Sears Hometown operators, who filed a clbad action suit against Sears Canada. The lawsuit was initiated several years ago and was approved by the court in 2014, although it was suspended during Sears Canada's insolvency proceedings. Lou Brzezinski, a lawyer with Blaney McMurtry LLP, who represents the dealerships in Hometown, said the retirees made a "fair and reasonable" compromise.