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Judge rejects Hudson’s Bay restructuring proposal intended to save remaining stores

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An Ontario judge has rejected a Hudson’s Bay Company restructuring agreement, increasing the likelihood that lenders may seek to push the company into receivership.

Agreement would have given embattled department store a deadline, imposed budget

The Canadian Press

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A shopper exits a department store.

A shopper leaves a Hudson’s Bay store in Calgary on March 20. (Jeff McIntosh/The Canadian Press)

An Ontario judge has rejected a Hudson’s Bay Company restructuring agreement, increasing the likelihood that lenders may seek to push the company into receivership.

In a written decision issued Saturday, Justice Peter Osborne of the Superior Court of Justice said he declined to approve the agreement because it is “neither necessary nor appropriate at this time.”

The agreement wouldn’t have just given the embattled department store an April deadline to rescue its remaining stores but would have also handed increased power over the company’s creditor protection process to the retailer’s senior secured lenders.

The agreement would have imposed a weekly budget on the business that Hudson’s Bay would have regularly had to report to the lenders โ€” companies whose loans are backed by collateral, thus allowing them to seize the retailer’s assets to cover unpaid debt.

If Hudson’s Bay reached a deal for the business with a new buyer, the agreement would have also required approval from the lenders.

WATCH | Hudson’s Bay begins liquidation:

Hudson’s Bay begins liquidation, but best deals yet to come

Facing over a billion dollars of debt, the Hudsonโ€™s Bay Company has begun its liquidation process. An Ontario court gave the centuries-old retailer its blessing to sell off remaining stock at almost all its 96 stores. But as Liam Britten reports, bargain hunters might need to wait to find the best deals.

Osborne saidย he was “reluctant” to approve the agreement in part because the budget wasn’t submitted to the court or other stakeholders to reviewย and would have granted the lenders with rights and protections “to the exclusion of other stakeholders.”

He also saidย the monitor appointed by the court to help guide Hudson’s Bay through its creditor protection proceedings is sufficient to balance the lenders’ rights with those of other stakeholders.

Osborne’s decision marks the latest milestone in the creditor protection proceedings that have engulfed Canada’s oldest company since it admitted on March 7 that its financial difficulties were so significant, it had been deferring payments to landlords and suppliers.

As part of those proceedings, Hudson’s Bay began liquidating this week all but six of its 80 Hudson’s Bay, 13 Saks Off Fifth and three Saks Fifth Avenue stores. The six that have so far been spared are split between the Greater Toronto and Greater Montreal areas. The company has also negotiated room to add or remove more stores from the liquidation.

WATCH |ย Hudson’s Bay to pay $3M in bonuses, but no severance for workers:

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The restructuring agreement was fraught because some saw it as one of the only things holding back Hudson’s Bay lenders from asking the court to put the retailer into receivership.

Receivership is a process where a third party is given control of a company’s assets to repay creditors.

Lawyers representing Hudson’s Bay and the senior secured lenders did not immediately have any comments on Osborne’s Saturday endorsement.

Shoppers walk past empty shelves in a store.

Shoppers walk past an empty sales area at a Hudson’s Bay store in Vancouver on March 24. (Darryl Dyck/The Canadian Press)

Many of the lenders argued in favour of the agreement in court last week.

“We don’t want to fight. We don’t want to bring a receivership application,” Linc Rogers, a lawyer for Bay lender Restore Capital, said Thursday.

“We are looking at this court and saying there is a better path forward.”

People walk down a sidewalk near a department store.

People walk past the Hudson’s Bay store in Montreal on March 17. (Christinne Muschi/The Canadian Press)

However, landlords likeย Ivanhoรฉ Cambridge, Oxford Properties, Cushman & Wakefield, Morguard, RioCan Real Estate Investment Trust and KingSett Capital argued that the best path forward was to not approve the agreement.

They preferred that the company rely on another process already playing out that will see Hudson’s Bay entertain bids from potential buyers for its entire business or its assets.

David Bish, a lawyer for Cadillac Fairview, which owns 16 of the properties where Hudson’s Bay has department stores, felt that accepting the restructuring agreement will hamper any way forward for the retailer by effectively putting control of its future into lender hands.

Shoppers browse inside a store.

Shoppers browse a Hudson’s Bay store in Toronto on March 17. (Christopher Katsarov/The Canadian Press)

“They aren’t incentivized to restructure. They are incentivized to liquidate,” Bishย saidย in court on Thursday.

Rogers, who represents lender Restore, disagreed.

“We are asking for protection,” he said. “We are not asking for a reward.”

At one point, he even offered to amend the agreement to give Hudson’s Bay an additional few weeks to avoid liquidation of the six stores, saying his client was “prepared to assume additional risk” to diffuse the situation.

“We are not looking to pick fights,” Rogersย said. “We are looking to resolve issues.”

For its part, Hudson’s Bay argued in favour of the court approving the agreement, but its lawyer said it wasn’t the kind of arrangement his client coveted.

The agreement lacked the time, number of stores and latitude Hudson’s Bay would have preferred, Ashley Taylor said.

“It was not a very satisfying outcome,” he told the court on Wednesday.

WATCH |ย What went wrong with Hudson’s Bay?:

What went wrong with Hudsonโ€™s Bay?

After 355 years of history, the future of the Hudsonโ€™s Bay Company is uncertain. CBC’s Eli Glasner explains how we got here.

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