By MARINA STRAUSS
Tuesday, September 11, 2018
Sears Canada Inc. retirees face rising resistance in their quest to recoup all of the money still available to creditors in the retailer's insolvency proceedings to cover part of their $260-million pension deficit.
The pensioners have asked Ontario Superior Court to give them priority for what value is left in the retailer - about $158-million as of Sept. 1. But the court-appointed monitor that is overseeing Sears's insolvency says it opposes giving the pensioners first dibs on the remaining funds. Such a move would leave nothing for other unsecured creditors, the monitor, FTI Consulting Canada, said in a report filed late last week.
"The pension motion is a significant issue affecting recoveries of all creditors," the monitor said, adding that it is speaking on behalf of all creditors in their opposition to pensioner priority payments.
The pension issue is the most crucial one remaining in the Sears proceedings, pitting defined-benefit pensioners against former employees and other unsecured creditors who are vying for a piece of the little amount of money that is expected to be left in Sears's coffers.
The battle underlines the tenuous position retirees can face after years of paying into a pension plan only to see the company falter.
Sears got court protection from its creditors in June, 2017, after years of shifting strategies and financial difficulties.
The retailer shut about 255 stores, leaving about 16,000 employees without jobs.
Its last outlets closed in January.
Some employees who were abruptly let go without severance on June 22, 2017, in a mass termination meeting at the Metro Toronto Convention Centre say they are struggling and need any money they can get.
"I find that each month, I am scrambling to be able to pay my bills," says former Sears marketing analyst Yulanda Samuel, a single mother who worked at the retailer for 30 years and has been able to find only part-time work since her termination.
"Although I have considered a personal bankruptcy or making a consumer proposal, that is an option of last resort," Ms. Samuel says in a court filing. "For now, I continue to scrape by each month while I look for a full-time job comparable to what I had at Sears Canada."
Marinella Gonzalez, also a single mother, who worked at Sears for 18 years, wrote in a sworn statement: "My financial situation and future looks completely different than it did a year and a half ago. My income has been reduced by almost $20,000 per year. My savings are diminished. ... Sears Canada's insolvency will have a permanent impact on my future."
Sears has more than $1.9-billion of claims from unsecured creditors, and that could rise to even more, according to the monitor's latest report.
Meanwhile, the retailer had raised only $158.3-million from asset sales as of Sept. 1, although it is expected to collect a little more from divesting four remaining properties, the monitor says. It would mean unsecured creditors would receive about 7 or 8 cents on the dollar if the pensioners did not get priority payments.
In contrast, if pensioners do get priority recovery payments, they would receive more than 60 cents on the dollar, while other unsecured creditors would get zero. (Sears has already fully paid its secured creditors more than $280-million.)
The Sears's defined-benefit pension plan had a wind-up deficit of an estimated $260.2million as of Sept. 30, 2017.
Former Sears employees are among those who oppose pensioners getting priority payments, which are called a deemed trust.
They will ask the court on Nov. 1 to put Sears into bankruptcy rather than having it continue to operate under the Companies' Creditors Arrangement Act (CCAA), which allows a failing company to restructure and emerge as a going concern. The switch to bankruptcy would pave the way for former employees to invoke the deemed-trust priority argument which, according to jurisprudence, only kicks in with a CCAA and not a bankruptcy.
However, Andrew Hatnay, a lawyer at Koskie Minsky LLP, which represents pensioners, said he will argue that the firstpriority claim applies even in a bankruptcy.
He said past case law and the Ontario Pension Benefits Act establish that the pension wind-up deficit is a first-priority payment in a CCAA and, he believes, in a bankruptcy as well.
Former employees and retirees say they are owed $628-million, including $436-million for post-employment benefit claims and retiree discount claims, and $192-million for former employee termination and severance claims, the monitor's report says.
Customers with potential warranty claims say they are owed $88-million; contractors and other suppliers, including many smallbusiness owners, have claimed $320-million, it says.
Some of Sears's 18,000 retirees faced another setback last month when the pension benefits of those outside of Ontario were cut by 30 per cent as a result of the under-funding. Ontario retirees receive payments from the Ontario Pension Benefits Fund.
People stand on an escalator in front of a Sears store in Mississauga in October, 2017. The retailer has shut about 255 stores, leaving about 16,000 employees without jobs.
MARK BLINCH /REUTERS