November 30, 2018
On October 18, 2018, Representative Counsel entered into a tentative settlement with the CCAA Monitor, along with the Ontario Superintendent of Financial Services on behalf of the Ontario Pension Benefits Guarantee Fund, and Morneau Shepell (the firm appointed as wind up administrator of the Sears Canada Pension Plan), to settle the motion we filed in the Sears Claims Process claiming a deemed trust priority for the Sears Canada Pension Plan members in the amount of the wind up deficit (approximately $260 million) in the Sears Canada Pension Plan.
The settlement is subject to conditions which must be fulfilled before it becomes a binding agreement.
The settlement will treat the pension deficit claim at 2½ times the actual amount of the pension wind up deficit, or a claim in the estate of Sears Canada of approximately $650 million for distribution purposes from the estate of Sears Canada.
At this stage, the vast majority of assets of Sears Canada have been sold and there is only expected to be about $180 million available for distribution to all of Sears Canada creditors. Borrowing from economic theory, the law of diminishing returns applies in this case. Despite its merits, the pension deficit deemed trust claim was opposed by the Monitor and other creditors and would have likely led to protracted litigation and appeals. Most of the litigation costs opposing the claim would have been paid from the estate of Sears Canada. The longer the deemed trust litigation continued, the less there would be left in the estate for the claims of Sears Canada Pension Plan members and other retiree claims. In addition, litigation risk is always a factor.
Pursuant to the settlement, the pension deficit claim (accepted at 2½ times the actual deficit amount) will also receive its share of any litigation proceeds that are recovered in the upcoming litigation.
In addition to the pension deficit claim, the claims we submitted on behalf of Sears retirees for their terminated health and life insurance claims (claim amount of approximately $421 million), the purchase discount claim (for $13.7 million), and the unfunded supplemental pension claim (amount under discussion with the Monitor) remain in the estate as accepted claims and eligible retirees will receive a distribution in the future. The total amount of retiree claims in the estate, including the pension deficit claim of approximately $650 million, is therefore 1.2 billion.