Businesses of all sizes in Canada face financial difficulties and may need help in addressing them. The sudden insolvency proceedings engaged by Target Canada illustrates this.
Readers likely remember that earlier this year, the company sought protection from the court under the Companies’ Creditors Arrangement Act. Shortly thereafter, all of its stores were closed and employees laid off. The inventory in the stores was sold in close-out sales. At the time of the filing, Target Canada indicated it owed creditors approximately $2.6-billion.
Recently, the business proposed a recovery plan in order to address amounts owed, including to suppliers and landlords. Under the plan, suppliers would receive 75 to 85 cents on the dollar. In exchange for release from guaranteed future lost rents, landlords would receive a formula of payments along with a “top-off.”
Not all landlords are pleased with this proposal as some held home secured guarantees of the parent, Target Corp. and were thus concerned that payments received under the proposal would be much less. According to Target Canada, under the recently proposed plan, these landlords would receive 75 to 85 percent of “proven formula and other claims.” In addition, those who had guarantees would receive an “enhanced and accelerated” amount. In the end, Target asserted that those landlords will get 100 percent of “proven restructuring period claims.”
In creating the proposal, Target Canada looked to its parent company, Target Corp. , which reportedly agreed to subordinate intercompany claims totalling around $5-billion. This agreement was reached after several months of negotiation and is contingent on all claims,including the secured guarantee claims,being settled and released. Whether the plan will be approved by all creditors remains to be seen. They are meeting next month.
As the situation with Target Canada and landlords illustrates, this process is complex. Businesses seeking to avoid bankruptcy may need to seek protection under the CCAA with the assistance of legal counsel. Working with a lawyer to develop the best possible workout for all parties involved can result in a resolution being reached sooner.