Sears Canada Inc., March 2, 2018
March 2, 2018
In February, 2018, we as Representative Counsel to all retirees and former employees of Sears Canada brought forward a motion to appoint a Litigation Investigator to investigate claims and potential litigation for the benefit of all creditors of Sears Canada.
As reported in the public domain, the financial circumstances of the demise of Sears Canada are egregious:
- From 2005 to 2013, almost $3 billion in dividends were paid by Sears Canada to shareholders;
- The Sears Canada Pension Plan is underfunded by $270 million;
- In June, 2017, Sears Canada obtained CCAA protection and proceeded to liquidate and shut down its business; and,
- Unsecured creditors are facing a recovery of $0.00 to $0.10 cents on the dollar of their claims (Monitor’s 13th Report, para. 23).
The Monitor in its 11th report announced that it is investigating certain potential reviewable transactions involving Sears Canada, including certain of the dividend payments, as well as the sale of the Craftsman trademark. The Monitor reported that “further review of [these] Transactions is appropriate” (para. 53).
Our motion to appoint a Litigation Investigator proceeded today before the court. Lawyers for Sears Holdings, Edward Lampert and ESL Investments attended in court and objected to various aspects of the motion.
We are pleased to report that Mr. Justice Hainey granted our motion and issued an order today appointing the law firm of Lax O’Sullivan Lisus Gottlieb LLP as the Litigation Investigator. The mandate of the Litigation Investigator is to investigate, review, and report on all potential claims that Sears Canada and/or its creditors may have against any third parties, including current and former directors, shareholders, and advisors of Sears Canada. A copy of the court order can be viewed here: Litigation Investigator Order.
As part of the court’s order, the formation of a Creditors’ Committee comprised of members of various major creditors groups, including Pension Representative Counsel, landlords, class action plaintiffs, FSCO and Morneau as pension plan administrator, was also approved to consult with the Litigation Investigator.
The terms of the Litigation Investigator Order contemplate that its mandate will proceed in two stages. First, the Litigation Investigator will review all potential claims that would benefit all creditors of Sears Canada and report to the Creditors’ Committee with recommendations regarding a proposed litigation plan. In the second stage, the Litigation Investigator would return to Court to seek authorization to pursue litigation for the benefit of all creditors of Sears Canada.
We believe that the appointment of the Litigation Investigator is an important positive step to identify and examine all potential claims against various parties in a coordinated, organized, and cost-effective manner for the benefit of all creditors of Sears Canada. We will report further on the Litigation Investigator in future postings.