The Target Canada liquidation plan for the sale of its inventory, fixtures, store leases and other real estate was approved by Order of The Honourable Regional Senior Justice Morawetz on February 4, 2015. In this blog, we will focus only on the Target Canada liquidation of the inventory, furniture and fixtures located at its retail stores, distribution centres and corporate head office. Hopefully, we will succeed in explaining it in plain English!
Target Canada sought and obtained creditor protection on January 15, 2015 under the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (“CCAA”), a Canadian federal statute. As we indicated in our earlier blog, TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING, the CCAA, which is normally used for the restructuring of insolvent corporations with debts over $5 million, in order to preserve all or a portion of the business and jobs. This time, rather than being used for a restructuring and turnaround, it is being used to provide for an orderly liquidation.
The closing of the Target Canada stores will put 17,600 people out of work over the next five months. The Initial Court Order provided for an Initial Stay Period was to expire on February 13, 2015. In order to carry out the Target Canada liquidation plan, part of the relief it sought and obtained was an extension of the Stay Period to May 15, 2015.
The two questions that we have been asked the most are: 1. what is the Target Canada liquidation plan for its inventory and chattels and how long will it take; and 2. will the suppliers receive everything they are owed from the liquidation?
The first question is easier to answer than the second. First, below in point form is a summary of the Target Canada liquidation plan for its inventory and chattels which is now approved by the Court:
- An exclusive agent was approved to conduct the Target Canada liquidation of the inventory, furniture and fixtures located at the retail stores, distribution centres and corporate head office, to liquidate in its entirety.
- The exclusive agent is a contractual joint venture comprised of Merchant Retail Solutions ULC (“ULC”), Gordon Brothers Canada ULC and GA Retail Canada. ULC will collectively act as the exclusive agent.
- The current time estimate is that the Target Canada liquidation will end no later than May 15, 2015 for the stores, April 30, 2015 for the distribution centres and March 31, 2015 for the corporate office. Circumstances may alter this schedule, but this is the current plan.
- All sales will be “final sales” and “as is” and all advertisements and sales receipts will reflect same.
- The exclusive agent has guaranteed that Target Canada will receive a net minimum amount of 74% of the “Cost Value” of the Merchandise (the “Guaranteed Amount”), computed in accordance with the Agency Agreement, and subject to adjustment in accordance with the Agency Agreement, if: (i) the aggregate Cost Value of the Merchandise is less than $445 million or greater than $475 million; and/or (ii) the Cost Value of the Merchandise as a percentage of the Retail Price of the Merchandise exceeds 63%. (This part was not plain English!!).
- What this means is that if there is no adjustment to the Guaranteed Amount calculation based on the Agreement, Target Canada is guaranteed to receive a minimum estimated amount of $340 million from the liquidation of the inventory, furniture and fixtures (based on an average Cost Value of $460 million).
Now for the second question. Target Canada owes money to nearly 1,800 businesses around the world, from India to Shanghai and Brampton to Winnipeg. It is impossible to estimate at this time what suppliers may expect to receive from the Target Canada liquidation, for the following reasons:
- There is no current estimate for what the net proceeds may be from the sale of the Target Canada store leases and real estate.
- There will be further deductions from the Target Canada liquidation including the:
- trust claims of any party, statutory or otherwise, against the assets, properties and undertaking of Target Canada;
- operating costs and liquidation specific costs for which Target Canada will have used its own cash flow rather than having borrowed those funds;
- exclusive agent’s Charge and Security Interest (on the Limited Inventory Charged Property only);
- Administration Charge (to the maximum amount of $6.75 million);
- KERP Charge (to the maximum amount of $6.5 million);
- Directors’ Charge (to the maximum amount of $64 million);
- Financial Advisor Subordinated Charge (to the maximum amount of $3 million); and
- DIP Lender’s Charge.
- The final amount of claims to ultimately be filed and admitted in the Target Canada liquidation are unknown. All we know is that in its initial motion material, Target Canada stated that it owed a total of $5.1 billion, of which $3.1 billion was owed to an entity related to Target Corporation in the United States. Target Corporation has stated that it will subordinate its $3.1 billion claim to those of the unsecured creditors.
- What claims may come before the claims of unpaid suppliers? The unpaid suppliers are ordinary unsecured creditors. The scheme of distribution, which has not been developed yet by Target Canada or submitted to the Court for approval, will have to reflect that the claims of trust claimants, other secured creditors and preferred creditors must be paid first before the claims of the ordinary unsecured creditors.
On paper, it seems that the Target Canada liquidation will provide sufficient proceeds to pay off all creditors in full, with assets and liabilities both in the $5-billion range. But the true value of the recorded assets will be less than stated. So for now, this second question cannot be answered.
We will continue to watch and blog about the Target Canada liquidation. If your business is showing signs of financial stress, contact Ira Smith Trustee & Receiver Inc. before your business problems lead to your business closing. The earlier you begin to deal with debt, the more options you’ll have. We approach every file with the attitude that financial problems can be solved given immediate action and the right plan. Starting Over, Starting Now you can live a debt free life.