Hudson’s Bay proposes liquidation start Monday

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Hudson’s Bay Co. on Friday received court approval to start liquidating all but six of its 96 stores starting on Monday, as Canada’s oldest department store tries to find a way to pay back the millions of dollars it owes to its creditors and not shut down completely.

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The stores the company doesn’t plan to liquidate as of now are its flagship store in downtown Toronto, as well as those in Toronto’s Yorkdale Shopping Centre, Hillcrest Mall in Richmond Hill, Ont., and three in the Greater Montreal Area: Carrefour Laval mall, Pointe-Claire mall and the downtown location.

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But that doesn’t necessarily mean these stores won’t be eventually liquidated as well. HBC is currently in discussions with the landlords of those stores to see if there’s an opportunity to restructure, its lawyers said. If it can’t find a solution quickly, these outlets may also be liquidated.

“In discussions with the liquidator, we were able to negotiate for their removal, at least on a temporary basis,” Ashley Taylor, a lawyer at Stikeman Elliott LLP representing HBC, told the court on Friday. “There may be some opportunity to restructure around those stores. However, the time to do so remains very short.”

He also said he wanted “to be crystal clear” to the court that HBC does not currently have an agreement on which it could base a restructuring plan.

HBC on March 7 decided to seek legal protection from its creditors for 10 days through the Companies’ Creditors Arrangement Act (CCAA) and its application was granted by the court the same day.

The retailer has been struggling to pay its landlords, vendors and service providers and it was also concerned that certain landlords would lock the company out.

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As an example, it said a landlord locked Hudson’s Bay out of a store in Sydney, N.S., on March 7, while a team of bailiffs attempted to seize merchandise from a store in Toronto’s Sherway Gardens mall.

The move to enter CCAA was supposed to give Hudson’s Bay “breathing room,” the company said, while it looked for additional funding. But on March 14, the company said it had failed to get sufficient funding, so it would have to liquidate all its stores.

The court approved the company’s liquidation request, along with others, on Friday.

Judge Peter Osborne, who has been hearing the motions at the Ontario Superior Court of Justice in Toronto since March 7, on Friday said that the more stores “carved out” from liquidation, the better.

“There’s no alternative but to approve the liquidation effective immediately to maximize the chances of success,” he said.

Aside from the liquidation order, the hearing on Friday also showed that sales at HBC’s stores exceeded expectations in the past week following the news of the company’s potential closure. As a result, the company won’t require a loan it had taken to conduct the liquidation sale, its lease monetization process and other processes.

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The company also agreed to pay about $7 million per month to its joint-venture partner RioCan Real Estate Investment Trust, one of Canada’s largest REITs, which co-owns several HBC stores.

HBC had previously asked the court to temporarily exempt it from making payments linked to the joint venture as it tried to regain financial stability, but RioCan opposed that motion and said it was disappointed by how Hudson’s Bay was looking to restructure itself.

Joseph Pasquariello, RioCan’s lawyer, said the REIT was happy with the court’s decision on Friday.

“This is a good news day,” he told the court on Friday. “Another day without a complete liquidation is a good day, and having the company in control of their own destiny with the continued hope of some sort of a scaled-down new Hudson’s Bay is certainly welcomed by RioCan.”

A lawyer representing some of HBC’s workers, though, reminded the court that the company’s closure would impact more than 9,000 employees.

“I don’t think the court should be misled. This is not a good news day,” Andrew Hatnay, a lawyer at Koski Minsky LLP, said. “This is the demise of HBC slowly, but surely, which is unfortunate. There are going to be, ultimately, very substantial severance claims for the employee population.”

He expects severance claims will total more than $100 million.

• Email: nkarim@postmedia.com

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