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CANADA INSOLVENCY CHANGES: FEDS PRESS RELEASE OFFERS FEW DETAILS

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If you would like to listen to the audio version of this Canada insolvency Brandon’s Blog, scroll to the bottom and click on the podcast

Introduction

On September 4, 2019, the Government of Canada department of Innovation, Science and Economic Development, issued a press release. They announced that there would be changes coming to the Canada insolvency legislation.

I have previously written about the fallout from the Sears Canada insolvency. Specifically, about the plight of retired employees seeing their medical benefits eliminated and their pension entitlement slashed. After that, there have been several private member bills trying to fix the Canada insolvency laws.

Budget 2019

As I have written in previous Brandon’s Blogs, the concern is for retired people (and present employees) when a company enters into an insolvency proceeding. Like in the Sears case, the worry is associated with the staff member’s health benefits plan which could be gutted for retirees. An equally important concern, are underfunded pension plans when a firm enters into bankruptcy protection.

Insolvent employers have placed a moratorium on reimbursements to workers and especially retirees on valid medical claims. Also, the staff member pension plan payments can be cut for retirees because the insolvent firm has not made the called for contributions. The retirees are in the weakest position as they can never make up for what they are now losing.

Pension payments are postponed income. In an insolvency filing, there is generally absolutely nothing left for current (other than perhaps their WEPPA claim in bankruptcy or receivership) and retired employees.

The reality is that all politicians currently acknowledge simply exactly how unsecure pension plans and health plans may be in the case of insolvency, restructuring or bankruptcy.

The Liberals acknowledge that this is a significant issue. Nonetheless, in this budget, they chose to ignore the problem.

What the press release said

The Government of Canada said that it is dedicated to far better safeguarding the rights of pensioners, employees and others during insolvency procedures. They say they can guarantee all Canadians can have satisfaction when it pertains to retirement. They say they can do this while maintaining laws that continue to support growth, advancement and also great jobs in Canada.

The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development Canada said, that beginning November 1, 2019, reforms to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) announced in Budget 2019 will be enacted. He said that this will be done to enhance retired life security by making the insolvency procedure fairer, much more clear and also easily accessible.

So what is being planned?

The press release was consistent with the wording in Budget 2019. The press release went on to say that the BIA and CCAA modifications pertaining to boosting retirement protection will:

  • call for participants in an insolvency process to act in good faith (isn’t that already enshrined in our legislation and enforced by our Courts?);
  • offer the possibility of court-ordered disclosure of a creditor’s real financial interest in an insolvent business (how does this help retirees?);
  • enforce director obligations in suitable cases for senior management compensation settlements in the lead-up to an insolvency proceeding (whatever appropriate means);
  • limit the choices that can be taken initially in a CCAA administration to measures necessary to avoid the immediate liquidation of an insolvent company, thus boosting participation of all players (does this mean the government plans to outlaw a liquidating CCAA?);
  • exclude assets held in registered disability savings plans from creditors’ claims in bankruptcy;
  • reforms to the BIA and CCAA to guarantee the safeguarding of intellectual property user rights in insolvency, announced in Budget 2018, will also be enacted for November 1.

The devil is in the details

The Minister stated:

“It is unacceptable that some pensioners face hardship because of their employer’s insolvency and underfunded pension plans. Our government believes that after a lifetime of hard work, Canadians deserve a secure and dignified retirement. With these reforms, we are protecting Canadians’ retirement security and the ability of businesses to invest, grow and create more good jobs.”

This sounds great, but what does it mean? I don’t see anything in Budget 2019 or this recent press release that actually provides specifics on how retirees will be helped. There are no words talking about the super-priority of the amount of underfunding of pension plans. There is also no language on directors’ liability for such underfunding when the company continues to pay dividends to shareholders or bonuses to executives while the pension plan is underfunded.

We will have to wait to see how the proposed legislation actually reads. The other issue is our upcoming Federal election. Insolvency legislation is not a hot topic that gets votes. Perhaps real protection for retirees does. The government had a chance to really lay out how they will protect retirees, but they failed to do so. They talk about many issues in the press release. However, I don’t see anything directly related to retiree protection.

So I hope that the current federal government will follow through with legislation that has real teeth to protect retirees. But the 2019 Canadian federal election is scheduled to happen on or before October 21, 2019. That means that campaigning will have to begin very soon. So when will there be time to introduce the required legislation to be effective on November 1?

The federal government must have a plan otherwise they would not have put out the November 1 date in the press release. So let us wait and see and cross our fingers that retiree protection will be for real.

Canada insolvency summary

Are you nearing retirement with too much debt? Is your employer’s employee pension plan underfunded? Are you worried about how you will make ends meet in retirement?

The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.

There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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BUILDING AN EMERGENCY SAVINGS FUND: WE ALL NEED AN EMERGENCY FUND TO PROTECT OUR RETIREMENT

BUILDING AN EMERGENCY SAVINGS FUND 0
building an emergency savings fund

Building an emergency savings fund: Introduction

Many of us go about living our lives without giving any thought to building an emergency savings fund. After all, we live in the land of socialized medicine, so unlike our American neighbours, we won’t be ruined by medical expenses. If we need to come up with some cash for the plumber or car mechanic or roofer, there’s always a credit card, payday loan or retirement savings.

Building an emergency savings fund: Surviving a major life event

But what would happen if you lost your job, became disabled or got divorced? A credit card or payday loan can’t fix this kind of catastrophic situation. And, potentially, you could wipe out all of your retirement savings just trying to stay above water. How many ex-employees of Sears (and other companies like Sears) do you think are now living off their retirement savings?

Building an emergency savings fund: Canadians are not saving

Canadians are not saving. According to a Canadian Payroll Association survey:

  • Almost 50% Canadians are living paycheque to paycheque
  • 48% rely on payday to make ends meet
  • 25% couldn’t pay $2,000 bill if it popped up within the next 30 days

And a CIBC poll by Harris/Decima found that 45% of Canadians did not have an emergency savings fund at all.

Building an emergency savings fund: Protecting your retirement income

The lack of emergency savings can cause financial problems far beyond a short-term cash crunch, new research shows. Some people without cash reserves end up drawing on their retirement accounts, putting them at risk of shortfalls later in life, according to an analysis by the Pew Charitable Trusts.

Don’t think of an emergency fund as just a way to tap into some cash for an unexpected expense; think of it as a way to protect your retirement income.

Building an emergency savings fund: Some simple saving tips

Many people have said that they just can’t afford to save but saving doesn’t have to be large sums of money. Put away whatever you can afford, but do it regularly and diligently. If you still think you can’t afford to save, then drop an expense and save that money.

  • Bring your lunch to work
  • Stop buying designer coffee
  • Use public transit instead of your car
  • Put a limit on how much to spend on Christmas gifts or only buy for the children
  • If you smoke, stop now
  • Go out less to bars and restaurants

Building an emergency savings fund: Do you have more immediate financial problems?

Your retirement savings are not your emergency fund. Set up an emergency fund (if you don’t already have one) and commit to save. If you’re living paycheque to paycheque or already dipping into your retirement savings to make ends meet, give us a call today.

The Ira Smith Team has a successful track record of helping people just like you solve their financial problems and get back on track Starting Over, Starting Now.

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SEARS CANADA NEWS: HOW EDDIE LAMPERT WILL EVENTUALLY DRIVE SEARS HOLDINGS INTO BANKRUPTCY

Sears Canada news: Introduction

The news for Sears Holdings out of the United States is not better than the Sears Canada news. Customers at Sears can’t discover Whirlpool appliances or ladies’ Levi Strauss denim and currently the Wall Street Journal reports they are short on one of the holiday’s hottest toys– the L.O.L. Surprise– because its maker is questioning Sears’ financial wellness.

Sears Canada news: The sad, slow demise of Sears Holdings

Why it matters: Sales at Sears accounted for about 1% of U.S. GDP in the 1960s, however years of competition with big-box stores and online merchants, incorporated with current (mis)management by CEO Eddie Lampert, has whittled down Sears’ financial position extensively.

Sears Canada news: (Mis) management

I put “mis” in brackets because, I am not convinced that Mr. Lampert’s plan was to make Sears a successful retailer. He may have just seen assets with value that he could liquidate to reap financial rewards from until Sears can no longer function as a viable retailer. So what we see today with Sears, may very well have been his management plan all along. (See more on this hypothesis below).

Sears Canada news: The Wall Street Journal article

Currently distributors are minimizing deliveries, tightening funding terms, or declining to work with the merchant completely from concern of being stiffed if Sears is forced into bankruptcy. This is all according to a Wall Street Journal (WSJ) article on October 31, 2017 titled: “Inside the Decline of Sears, the Amazon of the 20th Century”.

Sears Canada news: What the analysts say about Sears Holdings

Bill Dreher covers Sears Holdings for Susquehanna Financial Group. WSJ states that “We see no viable path for Sears to succeed as a retailer,”. He worries that the suppliers are starting to lose confidence in Sears. He also suggests that this is what put Sears subsidiary Kmart into bankruptcy in 2002, when it was an independent company. Lampert took control of Kmart after its bankruptcy and then leveraged its stock to acquire Sears in 2005.

The fraying patience of vendors is clear as reported by the WSJ:

  • LG Electronics and Samsung are demanding money in advance to supply certain products.
  • Sears sued two long time manufacturers of its Craftsman tools brand before this year to keep them shipping product to stores. This is despite the Craftsman brand name was sold by Sears months earlier.
  • Clorox is imposing harder payment terms for its well-known products.

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Sears Canada news: Sears Holdings CEO

Mr. Lampert’s management style is partly responsible for Sears’ current battles, according to the article. The WSJ reports that Lampert took on a strategy of skimping on investment and upgrades and instead used that cash to buy back Sears shares from certain shareholders.

This approach maintained Sears stock price, until the financial crisis hit. It is no secret that Americans’ preference for online shopping grew significantly, which has negatively affected all brick and mortar retailers. Sears is no exception.

The WSJ articles states that Eddie Lampert doesn’t visit Sears headquarters greater than a pair of times annually. He likewise hardly ever visits stores and favours that top Sears executives do the same. He argues that it is more affordable and more efficient to connect with store managers over videoconference.

Sears Canada news: Sears Holdings continues to cannibalize itself

Sears Holdings has closed unprofitable stores and spun off lines of business. The merchant’s shop footprint has been more than cut in half. Since 2010, the number of Sears locations has dropped from 4,000 stores to 1,250 currently. Sears’ current strategy is to shut a lot more. From 2010 to 2016, its sales have dropped by almost half, from $43.3 billion to $22.1 billion last year.

Sears Canada news: The financials tell the story

Sears had just one quarter of favorable same-store sales growth between 2008 to the 1st quarter of 2017, according information from retail study company Retail Metrics. During that very same time, Sears’ operating income was negative in all but 8 of 37 quarters.

Sears is a laggard in a lagging field. The business has suffered EBIDTA losses, and requires cash for operating expenditures such as:

Sears Canada news: Sears Holdings has fended off bankruptcy; for now!

Sears has been able to fend off default for many years mostly with store closures, staff lay offs, asset sales and loans from Lampert’s hedge fund ESL Investments. In trying to revive sales, Sears has partnered with Amazon to market Kenmore items, tested new store styles and revived its holiday catalogue.

Few traditional stores have actually thrived in this period of online shopping. But Sears, which was at one time one of the most innovative retailers in America, has been left more than most retailers partly due to Lampert’s decisions.

For these reasons, one day I fear that there will be a big Sears clearance. Sears Holdings news out of the United States will be the same one day as what we already know about the Sears Canada news. It is only a matter of time, IMO anyway.

Sears Canada news: It doesn’t need to be your company’s news

If you’re attempting to discover a way to reorganize your firm’s debt, to ensure that you could avoid a Sears situation, call Ira Smith Trustee & Receiver Inc. If we consult with you early, we could develop a restructuring and turnaround strategy. By doing this your business will once again thrive.

Our approach for every person is to develop an outcome where Starting Over, Starting Now takes place. You’re just one telephone call away from taking the important actions to return to leading a healthy, balanced, and stress free life.

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SEARS CANADA CLOSING: POLITICIANS WANT NEW LAWS TO PROTECT PENSIONERS DUE TO SEARS CANADA CLOSING

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Sears Canada Closing: Introduction

Following the Sears Canada failed restructuring, is the Sears Canada closing of all stores. It is leaving 16,000 retirees unclear about the future of their underfunded pension plan. Support is expanding for brand-new laws to better protect Canadian workers during a company’s collapse.

Sears Canada Closing: What CARP has to say

CARP, a nationwide not-for-profit group formerly called the Canadian Association for Retired Persons, was recently on Parliament Hill to meet dozens of MPs as it lobbies for law adjustments.

Wanda Morris, vice-president of CARP, stated that CARP is requesting for the unfunded pension liability be provided priority position so it goes to the front of the line.

Pensioners hold no priority when it pertains to dividing up assets through a bankruptcy, and Ms. Morris wants protection for retirees for underfunded defined benefit pensions when the company goes through a restructuring or into bankruptcy.

Ms. Morris stated that along with the practically 16,000 retirees at Sears, CARP estimates that there are about 1.3 million workers in Canada that possibly could be in danger with defined advantage pension. Sears Canada closing all stores has made the plight of retirees a front and centre issue for CARP.

Sears Canada Closing: Private Member’s Bill C-372 passes First Reading

On Oct. 17, Bloc Québécois MP Marilène Gill suggested a member’s bill, C-372. The intent is to change the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

The change attempts to correct the injustice dealt with by retired workers whose pension as well as group insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring. The changes are a result of the Sears Canada employees and retirees treatment, as a result of Sears Canada closing locations.

Sears Canada Closing: What the NDP has to say

Hamilton Mountain MP Scott Duvall plans to introduce his very own private member’s bill to try to solve this problem. While he notes he has actually had talks with Gill, he claimed his suggestion will be a bit different.

Mr. Duvall specifies that his bill will amend the regulations from where it’s worded currently. He wishes that when a company goes into bankruptcy protection, the pensioners will be a secured creditor. He is also responding to the process which has led to Sears Canada closing store locations,

Sears Canada Closing: Bloc MP Marilène Gill and her Bill C-372

On October 17, 2017, MP Marilène Gill rose in Parliament and stated:

“Mr. Speaker, I have the honour to introduce my first bill in the House today, a private member’s bill that seeks to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

This bill seeks to correct the injustice faced by retired workers whose pension plans and group insurance plans are not protected when their company goes bankrupt or undergoes restructuring.

I will do everything in my power to ensure that this bill receives royal assent, that way, we can help prevent retirees, like those from my riding who are here today to support me, from losing their pensions, and improve the existing legislation by giving pension plans’ unfunded liabilities preferred creditor status, among other things. I hope my colleagues will be supporting this bill.”

Sears Canada Closing: Can it get Royal Assent?

BILL C-372 which passed First Reading on October 17, 2017 is named “An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance plans)”.

Private member’s bills such as this one rarely pass the House. However, I thought it would be useful to describe what Ms. Gill’s views are as a result of Sears Canada closing.

Below is my analysis of how BILL C-372 proposes to amend the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (Canada) (CCAA). The impetus of course is certain high-profile corporate restructurings/failures with underfunded defined benefit pension plans. With Sears Canada closing, Ms. Gill put forward her private member’s bill.

The most recent corporate failure which initiated her private member’s bill of course was a result of Sears Canada closing.

Sears Canada Closing: Bill C-372 proposed BIA and CCAA amendments

Bill C-372 wishes to amend the BIA as follows:

  • In order to be approved by the Court, a corporate restructuring proposal under the BIA, for a company with a prescribed pension plan, the Proposal must include payment in full of any unfunded pension liability or solvency deficiency calculated at the time of the filing of the Notice of Intention To Make A Proposal (NOI) or the Proposal if there is no NOI filed.
  • The unfunded pension liability or solvency deficiency calculation is by section 9 of the Pension Benefits Standards Regulations, 1985.
  • In a receivership, the receiver is personally liable for paying any unfunded pension liability or solvency deficiency but only from the proceeds of the sale of current assets.
  • In either a receivership or corporate bankruptcy, the charge for any unfunded pension liability or solvency deficiency would rank ahead of the charge of any other secured creditor.
  • The Officers and Directors of the company are not entitled to the benefit of this secured charge. Even if they are participants in the pension plan that has the unfunded pension liability or solvency deficiency.
  • In a corporate restructuring proposal or bankruptcy, the amount not paid under the Wage Earner Protection Program Act (Canada) (WEPPA). It is the amount to adequately indemnify the beneficiaries in the event the employer ceases to take part in a group insurance plan. Such a plan is one that provides for the payment of benefits to, or in respect of, employees or former employees for, among other things, life, disability, health or dental insurance is a preferred claim. It will be a preferred, but still an unsecured claim.
  • The amount equal to the difference between any severance pay or compensation in lieu of notice owed by an employer to an employee and any amount previously paid by the trustee for that severance pay or compensation in lieu of notice.

There are also proposed amendments to the CCAA in Bill C-372. It is to bring the same changes in that statute as described above. The intent is that the treatment under both statutes is the same. I won’t repeat those again.

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Sears Canada Closing: Will Bill C-372 become law?

As I stated above, it is very rare that a private member’s bill becomes real legislation. The other reason is that the Liberals hold a majority in Parliament. If they don’t want it to pass, it won’t.

On October 25, 2017, Innovation Minister Navdeep Bains said the Liberal government has no plans to change laws to protect pensioners in the wake of Sears’ bankruptcy. That is a pretty definitive statement.

So right now it seems there is a lack of political will to make the proposed law amendments. I suspect that on a financial basis, there will also be opposition for the following reasons:

  • In most cases, it will be impossible to have a successful large corporate restructuring if 100% of unfunded pension liability must be paid. Therefore, jobs will not be saved if we have more corporate bankruptcy filings instead of restructurings.
  • Lenders will have to now ignore current assets in the borrowing base of corporations. This will make corporate borrowing much more difficult for solvent corporations with pension plans to carry on business.
  • Lenders may have to reserve the entire amount of any unfunded amounts. They will rank ahead in a receivership or bankruptcy.
  • Severance pay or compensation in lieu of notice will now be a claim ranking ahead of trade suppliers in a corporate restructuring or corporate bankruptcy. This may alter the amount of an unsecured credit line a supplier will be willing to give to a customer.
  • It will cause more chaos to normal lending and trade practices which will be a problem for any government.
  • Claims under the group health indemnity provisions may not result in any real benefit to employees of a company going through either a corporate restructuring or bankruptcy. There is rarely funds left over after the claims of secured creditors.

We will keep monitoring this important issue. We will update you when MP Scott Duvall puts forward his private member’s bill and as other matters arise.

Sears Canada Closing: What To Do If You Or Your Company Need A Financial Restructuring?

It is now Sears Canada closing time. If you’re attempting to discover a means to restructure your firm’s debt, so that you can avoid a Sears Canada closing scenario, call Ira Smith Trustee & Receiver Inc. If we meet with you early on, we can create a restructuring and turnaround strategy. That way your company won’t have to be like Sears Canada closing.

Our strategy for every person is to create a result where Starting Over, Starting Now occurs, starting the minute you walk in the door. You’re simply one telephone call away from taking the crucial steps to go back to leading a healthy, balanced and tension free life.

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SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

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Sears Canada is closing: Introduction

It is the end of a Canadian retail symbol. Sears Canada is closing every one of its remaining 130 stores. After 65 years of business in Canada, Sears Canada is closing.

On Friday, October 13, 2017, the Ontario Superior Court of Justice Commercial List, under the Sears Canada CCAA process, issued the liquidation order. The final Sears Canada liquidation sale will begin and then the final Sears Canada stores closing happens. The reason for this is because there were no practical Sears Canada bids for the Court to consider from the entire bid process. The only alternative was complete liquidation. So the Court has now ordered that Sears Canada is closing.

Sears Canada is closing: I hate to say I told you so, but on June 21, 2017…

I gave the history of Sears Canada in my June 21, 2017 vlog, SEARS CANADA CLOSING DOWN: THE SEARS CANADA NEWS RELEASE LEADS ME TO THIS CONCLUSION. I also talked about the problems today in the North American retail industry and provided my personal belief that:

“Sears Canada are as good as finished. It is just currently an issue of time before the last pieces are marketed and sold.”

So, that we now know Sears Canada is closing is not a surprise to me or my readers.

Sears Canada is closing: I hate to say I told you so, but on August 2, 2017…

In my August 2, 2017 vlog, SEARS CANADA NEWS TODAY: ARE THEY SABOTAGING THEIR OWN RESTRUCTURING?, I talked about the public backlash at that time. I spoke about the social media campaign against the Sears Canada key employee retention program (KERP) proposed payments to senior management.

This KERP program implementation happened while the ordinary Sears Canada employees and retirees were being hurt. They knew they were not going to receive all of their benefits and pension payments or any severance or termination pay.

I then provided my personal assessment that:

“You must wonder if Sears Canada really wants to restructure, or if they are just liquidating their inventory. They are also trying to sell whatever other assets they can. If it was a true restructuring, you would think that senior management would want to see more customers who would be loyal to (the new) Sears Canada when it would exit bankruptcy protection.”

We now see that there is no possibility of restructuring. Just a Sears Canada liquidation and then Sears Canada is closing. I am proud of my professional opinions. However, it gives me no joy to see that the remaining 12,000+ Sears Canada employees will for sure now end up on the Sears Canada list of creditors.

Sears Canada is closing: I hate to say I told you so, but on September 27, 2017…

In my September 27, 2017 vlog, “TORONTO BUSINESS BANKRUPTCY PROTECTION: NDP WANTS FEDERAL INSOLVENCY LAWS CHANGED SO THERE IS PENSION PLAN SECURITY WHEN FINANCIALLY TROUBLED BUSINESSES FAIL”, I told you about Hamilton Mountain MP Scott Duvall. He is the New Democrats’ pension plan critic. He said that he will present a private member’s bill to secure employees’ pension plans and benefits. His bill will also pressure business to offer termination or severance pay, prior to paying secured lenders.

Mr. Duvall anticipated that Sears Canada is closing. We will have to see if his effort gets any traction.

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Sears Canada is closing: The liquidation agreement

The Company intends to begin the liquidation sales by today. So you’re going to see offers at existing Sears Canada stores. Many of the store employees will keep their job during the liquidation. However, most of the 800 or so staff members at Sears head office in Toronto have now been let go.

Sears Canada became part of an Agency Arrangement with a legal joint venture. It consists of:

  • Gordon Brothers Canada ULC;
  • Merchant Retail Solutions ULC (collectively, with Tiger Capital Group, LLC and GA Retail Canada ULC.

The liquidation agreement dated October 7, 2017 has arisen from the solicitation procedure. BMO Nesbitt Burns Inc. (“BMO”), the Sears Canada financial advisor, obtained proposals from 7 prospective liquidators. The liquidation proposals were to help the Sears Canada Group with liquidating the inventory, furniture, fixtures and equipment remaining throughout Canada.

Sears Canada is closing: How the liquidation will work

The liquidation is to begin no later than October 19, 2017. The liquidation sales will continue for 10 to 14 weeks. The outside day for finishing the liquidation sale right now is January 21, 2018.

The liquidation will take place at all remaining Sears Canada full-line and home store locations. It may also happen at some of the Sears Canada distribution centres. Sears Canada will receive a guaranteed minimum recovery of:

  • 83% of the cost value of the inventory included in the liquidation sale at the full-line stores; and
  • 52.5% of the cost value of the inventory included in the liquidation sale at the Sears Home stores, subject to certain exceptions.

You may be able to snap up some bargains to put under your Christmas tree as Sears Canada is closing.

Sears Canada is closing: The honouring of Sears Canada gift cards, gift certificates, merchandise credits

Although Sears Canada is closing, gift cards and certificates and merchandise credits are honoured. No gift cards or certificates will be sold. Returns will not be allowed when it comes to any kind of goods offered throughout this Sears Canada liquidation process or the liquidation approved earlier by the Court on July 18, 2017. The Company will then have a time period to clean up and vacate the stores while Sears Canada is closing.

Sears Canada is closing: A Sears Canada warranty won’t be honoured

As far as warranty claims, if the warranty is from a third-party, then you may claim on any warranty for a product purchased at Sears. If it is a Sears Canada warranty, then you are out of luck. That warranty is now worthless because Sears Canada is closing.

Is your business showing early warning signals of financial problems? Are you scared that it too may have its own “Sears Canada is closing” scenario?

If you’re trying to find a way to reorganize your company’s financial debt, call Ira Smith Trustee & Receiver Inc. Don’t wait until it is too late and corporate bankruptcy is the only answer. If we meet with you early enough, we can develop a Sears Canada chapter 11 like restructuring and turnaround plan. The plan will be to save your company and the jobs of many people. It does not have to end in a “Sears Canada is closing” scenario.

Our technique for every person is to develop an outcome where Starting Over, Starting Now happens, beginning the minute you stroll in the door. You’re just one call away from taking the essential action steps to get back to leading a healthy and balanced stress and anxiety free life.

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SEARS CANADA NEWS TODAY: ARE THEY SABOTAGING THEIR OWN RESTRUCTURING?

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Sears Canada news today: Introduction

“I will certainly not invest one red cent in your shop … no severance, no sale,”

A (typical comment) posted on the Sears Canada Facebook page before the company blocked new comments and made old ones vanish.

Well there has been a lot of Sears Canada News today and in the last month. The company sought bankruptcy protection only last June 22, 2017. It has been only a little over 1 month, but there has been so much media attention it seems a lot longer.

Sears Canada news today: Social media backlash

We’ve seen on social media that Sears Canada is facing a backlash when it comes to how they’re handling this liquidation. Notice that I am using the word liquidation, as opposed to restructuring. This is in spite of they are currently operating under the Companies’ Creditors Arrangement Act (Canada) (CCAA). This statute is designed as a restructuring statute.

Sears Canada news today: Why KVETCH about a KERP?

It comes just as the company began its liquidation sales at those fifty-nine stores they’re looking to close. There is a boycott in Canada that is gaining some traction on social media. People are upset with Sears Canada’s senior management. They obtained on the first Court application, approval from the Court on their plan to pay themselves retention bonuses. These bonuses would be paid under the terms of what is commonly called in complex corporate restructurings a “Key Employee Retention Plan” (KERP).

The retailer introduced that, as part of a Court-supervised restructuring procedure. It is shutting 59 of its 255 shops and letting go 2,900 workers. None of them will get severance pay. Sears also will stop payments to the employees’ defined benefit pension plan. The retailer recently accepted to delay that pension plan payment issue till September 30th.

Sears also accepted the compromise with the former employees to maintain paying health benefits for an extra 3 months until the end of September. This is so the people could have that time to get alternate coverage. It is still not great though. The employee pension plan will remain underfunded. The employees will have to look for a new health plan. To date, there is no provision for former staff to receive any sort of package.

Sears Canada news today: What exactly is a KERP?

It is normal in complex corporate restructurings to set up a KERP. The concept of a KERP began in US corporate restructurings in the 1990’s. The theory is that to have a successful restructuring, senior management have specific knowledge and ability. If they walked away from the company in bankruptcy protection, such as to accept a senior position elsewhere, the company would have a much more difficult and costly time in restructuring. Hence the idea was born that those essential managers should be promised a bonus to create the most value possible in the restructuring for the stakeholders. This is in addition to their normal compensation.

Often KERPs are now viewed as either:

  1. a standard item that senior management expects to receive; or,
  2. a greedy money grab negatively affecting other stakeholders.

I have not yet read any material to show why the Sears Canada bankruptcy protection case is so complex. I have not read how Sears Canada could not liquidate without existing senior management. It is earlier and current senior management who have not created a retail vision niche for Sears Canada for years.

Sears Canada news today: Time to “come back”

Thankfully, all CCAA protection orders have a standard “come back” clause. The reason for this is that not every stakeholder receives notice of the company applying for the bankruptcy protection order. Any stakeholder can come back to Court to oppose any part of the original order they did not receive notice of. They could not tell the Court of their position, and now want to come to Court with their complaints.

The Court appointed a law firm to represent the interests of the employees and former employees. As part of their motion material filed with the Court, they are asking the Court to amend the Sears Canada KERP. They state:

  1. the amounts are excessive under the circumstances; and
  2. the KERP does not incentivize senior management to enhance the value of Sears Canada.

It will be very interesting to follow this.

Sears Canada news today: It didn’t have to be this way

You may recall that Target Canada took a slightly different route towards its former employees when it decided to liquidate and leave Canada. It also liquidated under the CCAA. In our blog “TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING”, we told you about the liquidation and that Target US established a trust fund for payment of the Target Canada obligations to its employees. For sure personal hardships occurred. At least they tried to soften the blow.

So now, while Sears Canada wants customers to come and buy at the liquidation sale, they have a PR nightmare on their hands.

Sears Canada news today: No comments please

It is so bad, that Sears Canada is not permitting public messages on its Facebook page. Most the messages from the public so far are negative against the company. CBC News recently noted that Sears Canada’s Facebook page was riddled with remarks from Canadians objecting exactly to what was happening to the company’s employees. Sears Canada has removed those comments from its Facebook page as well as blocking new comments.

sears canada facebook comments layoffs
Picture courtesy of CBC News

Sears Canada news today: Certainly a funny way to stay in business

You must wonder if Sears Canada really wants to restructure, or if they are just liquidating their inventory. They are also trying to sell whatever other assets they can. If it was a true restructuring, you would think that senior management would want to see more customers who would be loyal to (the new) Sears Canada when it would exit bankruptcy protection.

So instead of growing a loyal customer base, Sears Canada’s actions have spawned a strong and growing “Boycott Sears” momentum. They’re going to have to deal with that. It’s going to be interesting to see exactly how this plays out while Sears Canada currently is shopping for a buyer.

According to Sears Canada, the unhappy remarks did not motivate it to close the public articles or to remove many of the bitter statements. Regardless, the former employees are still faced with now with the question “how do you collect salary owed to you from an employer that goes out of business”.

Sears Canada news today: What to do if you or your company have too much debt

If your company or you are experiencing financial problems, contact Ira Smith Trustee & Receiver Inc. We’re here to tell you on your restructuring and other options to avoid bankruptcy. If necessary, we can also talk to you about your bankruptcy options.

We can help you put your financial house back in order and set you on a path to debt free-living. You’ll be amazed at the difference one phone call to Ira Smith Trustee & Receiver Inc. can make.

Contact us today. We are a licensed insolvency trustee and will listen to your issues and offer compassionate, professional assistance to aid you to avoid bankruptcy.

With our help, you can regain control of your life, Starting Over, Starting Now.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

SEARS CANADA CLOSING DOWN 1

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SEARS CANADA CLOSING DOWN: THE SEARS CANADA NEWS RELEASE LEADS ME TO THIS CONCLUSION

Sears Canada closing down: Introduction

On May 24, 2017, we released our vlog RETAIL BANKRUPTCY WATCH LIST: WHAT THIS 102 YEAR OLD TEACHES US ABOUT RETAILING. We discussed and analyzed the state of retail in 2017 in North America. At that time, there was no announcement about Sears Canada closing down.

Shortly afterwards, Hudson’s Bay Company announced massive job cuts. We had just uploaded our vlog HUDSON’S BAY COMPANY NEWS 2017: JOB CUTS for publication on June 14, 2017 when Sears Canada Inc. (Sears Canada) dropped a bombshell.

Sears Canada closing down: Sears Canada today

Sears Canada is an independent Canadian online and brick and mortar store merchant whose head workplace is in Toronto. Sears Canada’s special positioning is that it provides customers Sears tagged items, developed and straight sourced by Sears Canada.

It additionally is a leading rated mattress retailer in Canada, as well as the leading home appliance company in Canada. Sears Canada is undertaking a reinvention. It consists of brand-new consumer experiences at every touchpoint, a brand-new e-commerce system, as well as a brand-new collection of customer care principles developed to supply special experiences to consumers.

Sears Canada closing down: Sears Canada news release

It is a case of too little too late. The market is not responsive to Sears Canada’s efforts to rejuvenate its company. On June 13, 2017, Sears Canada revealed financial news for the 1st quarter of the financial 2017 year. Sears Canada divulged that:

  1. earnings was $505.5 million in the first quarter, a decrease of 15.2% as compared to the same quarter the year earlier;
  1. the gross margin was 22.6% in the first quarter of 2017, as compared to 28.2% for the very same quarter in 2016;
  1. EBITDA was a loss of $133.9 million in the first quarter compared with a loss of $75.4 million for the same quarter in 2016;
  1. the bottom line for the very first quarter was a loss of $144.4 million or $1.42 each share compared with a bottom line loss of $63.6 million or 62 cents each share in the very same quarter the year earlier; and most notably

Sears Canada divulged it requires either a financial restructuring or sale of the company. It also stated it does not have enough money to last through the current year.

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The Toronto Star reported that Sears Canada attempted to soothe customer fears despite advising it has ‘substantial doubt’ regarding its future. The article quoted several insolvency lawyers and our Ira Smith in this write-up.

Since Sears Canada has made this statement:

  1. customers will certainly be worried about getting products paid for however not in supply at the time of payment;
  1. consumers will certainly be worried about any kind of service warranty Sears Canada offers; and
  1. vendors will certainly be worried that they will not be paid for items delivered to Sears Canada.

Sears Canada closing down: How did we get to this point?

Sears Canada started in 1952 as a mail-order collaboration between Sears Roebuck Co. in the United States and Toronto’s Robert Simpson Company. They opened the very first Simpsons-Sears shop in Stratford, ON, in 1953. The mail-order as well as outlet store version was effective, for a long time.

In 1994, Wal-Mart introduced itself in Canada. It brought deep price cuts to we the north. They took control of the reduced as well as discount rate valued market.

Shops like Sears Canada as well as Hudson’s Bay, reacted by going towards a medium to higher-priced service version. At some point, over years, that business was “picked off” by specialized merchants.

Sears Canada after that missed its possibility to become an on the internet company. It should have known that it had to take on the likes of Amazon. E-commerce sites have created the death of lots of traditional sellers, like Sears.

Sears Canada closing down: Sears Holdings senior management

The C suite in both Canada as well as the United States has had a revolving door on it for several years. No person has existed enough time for Sears to carry out a well-planned and implemented survival strategy as the markets changed.

Sears in the United States, and for that reason Sears Canada, is managed by hedge fund manager Edward Lampert. In real hedge fund design, Sears Holdings as well as Sears Canada has sold off assets to raise cash for many years. It has cannibalized itself.

Sears Canada closing down: My personal assessment

In my viewpoint, Sears Holdings as well as Sears Canada are as good as finished. It is just currently an issue of time before the last pieces are marketed and sold.

Sears Canada has currently employed BMO Capital Markets to discover sale alternatives. It has also retained law firm Osler, Hoskin & Harcourt LLP for legal guidance. My hunch is that Sears Canada this year will certainly be put under court protection from creditors. Assets representing a business unit that can be sold off will be. The rest will be liquidated.

This is already a familiar tale for Canadians; Target Canada comes to mind. You can revisit its liquidation story in our previous blogs:

Sears Canada closing down: What about you and your company?

You or your business possibly does not have any kind of other assets to offer to raise cash. Even if you did, the Sears Canada tale reveals that over time, it does not work out. What every person and business needs is a proven strategy and a plan to go forward with.

If you have too much debt and insufficient cash flow, you need your plan and strategy in place NOW. Contact us now. The Ira Smith Team is here to solve your debt problems and help you carry out that winning strategy, no matter the reason. We’re here to help and get you back on solid financial footing Starting Over, Starting Now. We’re just a phone call away.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

SEARS CANADA CLOSING DOWN 1

 

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HUDSON BAY COMPANY NEWS 2017: JOB CUTS

Hudson Bay Company news 2017: Introduction

On May 24, 2017, we wrote our blog RETAIL BANKRUPTCY WATCH LIST: WHAT THIS 102 YEAR OLD TEACHES US ABOUT RETAILING. This was the tale of Ingledew’s, a 102-year-old Vancouver shoe shop chain that declared bankruptcy. There is one most compelling of all the retail bankruptcy problems today. That is the consistent consumer practice of identifying the item in bricks-and-mortar stores and after that getting it online from other shops. There are others on the retail bankruptcy watch listing for the same factors. The Hudsons Bay Company news 2017 is cutting 2,000 positions.

Hudson Bay Company news 2017: Current status

The Bay is losing cash. After a difficult 3rd quarter 2016, HBC was seeking to cut expenses as the seller’s shares were at their lowest point yet since going public for a second time in 2012. CEO Jerry Storch claimed at that time that HBC is eager to focus on searching for “non-customer facing” effectiveness after the company reported a wider loss than expected.

At that time, the reported reasons for the losses were expenses being too high and a 4% dip in sales at stores open for greater than a year. Jerry Storch pointed out weak point in women’s clothing as well as high-end retail. Certainly, those initiatives alone were inadequate. The losses at HBC proceeded and now they are cutting jobs that are “customer facing”.

HBC revealed last Thursday it is getting rid of 2,000 employees throughout North America to help balance out different difficulties it’s dealing with within the retail sector. One of the central issues facing large retailers is that they must close stores with the arrival of on the internet shopping.

Established in 1670, HBC, is the oldest business in North America and one of the eight oldest companies in the world. It uses greater than 66,000 people. It runs greater than 480 stores under banners such as The Bay, Saks Fifth Avenue, Lord & Taylor, Gilt, and Saks Off 5th.3bestaward

Hudson Bay Company news 2017: Hudson Bay earnings 1st quarter 2017

On June 8, 2017, HBC reported that the 1st quarter 2017 was a rough one. The retail clothing market remains challenging.HBC must adapt, beginning with a reorganization plan. Richard Baker, HBC’s Governor and Executive Chairman, said that the reorg plan will reshape HBC improving its costs.

His explanation of HBC’s restructuring will look not only at job cuts, but also its real estate assets and its diverse retail businesses.

Hudson Bay Company news 2017: Cost savings expected

The retail giant said the layoffs should save $350 million annually when the plan is fully implemented by end of financial 2018. A few of the layoffs were before introduced in February, the firm claimed.

Hudson Bay Company news 2017: It isn’t only HBC

This is the same tale that’s impacting a lot of big-box retailers today. Cash that used to be spent during a visit to The Bay, Sears and other big names like that; it’s going mainly to the web. Amazon is the main beneficiary, so you’re seeing these big-box retailers rushing to attempt and keep up. They’re reducing expenses to attempt to stem the losses. HBC’s stock is down 27% this year.

“As we have developed our plan, we have been determined to become not just a leaner company but also a better one” says Jerry Storch. Some industry experts have examined whether there is more value to leverage from HBC’s important realty profile. HBC has understood this to a degree with sale leaseback and joint venture arrangements.

In the case of Ingledew’s, the factors mentioned for the bankruptcy was that prices and financial obligation climbed due to:

  1. the lease prices paid to shopping mall property owners for rental fee;
  2. the amount of loan it took to open these gorgeous new stores; and
  3. the wages paid to get as well as maintain excellent people to be educated, deal with the consumer well and properly stand for the firm.

In the United States, there are annoying earnings records also from JC Penney, Macy’s, along with Nordstrom. This is against a backdrop of general distress in the retail market. Retailers are shutting shops and businesses applying for Chapter 11 in 2017. In the very first 4 months of 2017 filings have gone to a rate not seen since that the last recession.

Hudson Bay Company news 2017: What Moody’s has to say about Hudson Bay Company financial trouble

Twenty-two retailers in Moody’s portfolio are in severe financial trouble that might bring about bankruptcy. That’s 16% of the 148 firms in the financial company’s retail portfolio. This overshadows the level of seriously troubled retail firms that Moody’s reported during the Great Recession.

Hudson Bay Company news 2017: What about you?

Are you unhappy about the direction your debts are taking you? Do you or your company not have enough cash flow to make it through another season? Is the stress of too much debt affecting your health and life? Do you need a restructuring plan?

Call us now for a free consultation. The Ira Smith Team can help you sort through all the issues. We will create a plan to get you back on the road to financial health. Many times, we can avoid bankruptcy, using one of the various bankruptcy alternatives. Call us today so we can help you get your life back, Starting Over, Starting Now.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

HUDSON’S BAY COMPANY NEWS 2017 13

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