Retirees of the failed Sears Canada Inc. are asking an Ontario court to give them all of the roughly $135-million left in the retailer’s estate to cover part of their unfunded $260-million pension deficit − a move which, if successful, would leave no money for other remaining creditors.
The request sets the stage for a showdown between retirees and other unsecured creditors, some of whom are expected to oppose the pensioners’ quest for priority in payments because of the retirees' “deemed trust.” This can favour pension-plan beneficiaries for any deficit in the plan on its windup. The matter is scheduled to come before Ontario Superior Court on Tuesday.
Lawyers for at least some creditors have hinted in the past that they would fight a move that would give the retirees precedence over others in receiving the limited proceeds from the Sears wind down. The Toronto-based retailer collapsed under court protection from creditors in June of 2017 and, by early this year, had liquidated and closed all of its 255 stores and let go virtually all of its 16,000 employees.
Lou Brzezinski, a lawyer for some former Sears suppliers, said in an e-mail on the weekend that his clients will review the matter after Tuesday’s court hearing.
The retirees’ motion paves the way for tough decisions in the retailer’s court-protection process, pitting the plight of the retirees against that of unsecured Sears creditors who are trying to win back some of their considerable losses from the retailer’s insolvency.
Unsecured creditors have claims against Sears of at least $36-billion, although a “significant” number of those claims are duplications among the retailer’s various entities, says a report filed Friday with the court from the monitor in the case, FTI Consulting Canada Inc. Even so, the $36-billion does not include retiree or employee claims, it says.
Sears has about $135-million in cash balances with some properties still being divested, which should raise a little more money for creditors, it says.
The retirees alone are claiming a total of almost $730-million, including the pension wind-up deficit – for which they say they get priority − as well as lost health, life insurance and other benefit payments, lifetime merchandise discounts and supplemental pension benefits, says a document filed by the retirees on Friday.
The battle comes amid another setback faced by many of Sears’s 18,000 retirees. Starting in August, monthly pension benefits of non-Ontario retirees will be cut by 30 per cent as a result of the underfunding, Morneau Shepell, the appointed pension-plan administrator, said recently. Ontario retirees are expected to receive payments from the Ontario Pension Benefits Fund but that will not help those outside of Ontario who make up more than half of the retirees, the filing says.
The pending pension reduction along with other benefit losses “will continue to cause significant financial hardships for the retirees of Sears Canada and have caused stress and worry among the many retirees I regularly hear from all across Canada,” William Turner, a former Sears executive and one of three court-appointed pension representatives, said in a filing.
“Many of these individuals are elderly and highly dependent on their full pension benefits, which for most of them, are modest amounts.”
In October of 2017, Sears Canada stopped paying all health and life-insurance benefits to retirees.
Andrew Hatnay, a lawyer at Koskie Minsky LLP, which represents Sears retirees, said in an e-mail that their argument for priority pension payments has been supported by the Supreme Court of Canada in proceedings under the Companies’ Creditors Arrangement Act, such as the Sears case.
“We are asking the court to confirm the application of the deemed trust so that funds can be recovered from Sears Canada to offset the losses for the pensioners who will suffer with a 30-per-cent reduction due to the pension underfunding,” Mr. Hatnay said in the e-mail. “This loss is on top of the loss of their health and life-insurance benefits that were terminated by Sears Canada soon after it obtained CCAA protection."
Sears will ask the court on Tuesday to extend its protection period to Dec. 18 from July 31.