46 LEXPERT MAGAZINE
|
JULY/AUGUST 2016
| ART OF THE CASE |
makes a decision to open 126 stores [seven
were unopened] without having a proper
distribution network up and running and
then leaves without giving the enterprise a
chance?'" says one lawyer close to the case.
"ere was a great deal of bitterness among
many stakeholders who saw Target as yet
another big American bully."
To this day, the bitterness lingers. So
much so that many involved in the restruc-
turing credit the Monitor, and not Target
Canada, with convincing the parent com-
pany that setting up a trust fund for em-
ployees was the right thing to do.
ere's probably something to that. "e
conscience of the debtor is the monitor,"
says Sandler.
But it's also true that Target US agreed
to subordinate some $3.5 billion of its $5
billion-intercompany debt as part of its
CCAA filing. Swartz attributes much of
the success of the CCAA process to this.
"Everyone did so well because Target
Corp. was prepared to subordinate a sig-
nificant amount of debt at the very begin-
ning," Swartz says. "Otherwise the recover-
ies, especially those of the unsecured credi-
tors, would have been less than half what
they eventually got."
e subordination, however, came
with a heavy price for landlords. Justice
Morawetz's initial ex parte order stayed
any action enforcing the guarantees against
Target
USA.
Bish says the CCAA doesn't allow such
a stay. "Target simply asked the court to ig-
nore the statute, which says that guarantees
of this kind can't be stayed," he says. "How
the court could ignore that was never ex-
plained. Justice Morawetz simply said that
he was satisfied that he had jurisdiction."
Within a month, the landlords and their
counsel had organized a de facto steering
committee. Getting them organized, how-
ever, wasn't an easy task. Some 15 law firms
were involved in representing landlords.
gation was a driving force in the decision
to proceed under the CCAA. "ere's no
way the parent wanted to be stuck with 75
lawsuits in Canada aer the insolvency was
resolved and they were otherwise out of
Canada," she says.
According to Richard Orzy of Bennett
Jones LLP in Toronto, who represented
RioCan Real Estate Investment Trust, the
landlord with the largest economic stake in
the proceedings, the release of the guaran-
tees remained at the core of Target's negoti-
ating tactics throughout.
"We knew full well what Target was try-
ing to do," Orzy says. "What oen happens
is that the parent kicks in money it doesn't
have to contribute on condition that the
guarantees will be released in the hope that
the judge will agree that this is in the inter-
est of all creditors."
As it turns out, that's exactly what oc-
curred. e final plan provided for Target's
release of its intercompany debt, while the
landlords gave up resort to the guarantees.
Most unsecured creditors and employees,
meanwhile, had little cause for complaint.
BUT CONSENSUS didn't ome easily.
Good will, aer all, was in short supply
when Target announced its closure. Re-
sentment rose as it became evident that
mismanagement had loomed large in the
retailer's failure.
"People were asking themselves, 'Who
Some lawyers, including Bish (Cadillac
Fairview), Orzy (RioCan) and Matthew
Gottlieb of Lax O'Sullivan Lisus Gottlieb
LLP in Toronto (KingSett Capital), repre-
sented individual clients. Galessiere, how-
ever, represented some 15 Target locations
through three management companies and
about a half-dozen individual landlords.
When the concerns about the stay of the
guarantees emerged, Target called a meet-
ing of all the landlords' counsel. But Target
must have known that its position on the
ex parte stay of guarantees was fairly weak.
Conversely, the landlords' counsel must
have felt strongly that they were on the
right side of the law.
So much so that by the meeting's end,
Target had agreed to add what became
known as "Paragraph 19A" to an amended
original order. It provided that the claims
of any landlord against Target relating to
any lease of real property would not be de-
termined in the CCAA proceeding or af-
fected in any way by any plan filed.
"e speed and breadth of the landlords'
drive to organize and speak with one voice
surprised Target a bit and was fundamen-
tal to achieving the amendment," Bish says.
"It's something that could not have been
done much later because at that point the
horse would have le the barn."
In return for the insertion of 19A, the
landlords agreed to withdraw their oppo-
sition to the CCAA process and to refrain
from pursuing proceedings in bankruptcy.
AS IT TURNED OUT, the insertion of
Clause 19A wasn't the only development
that restored the balance of power as be-
tween Target and its creditors. Both the
trade creditors and the pharmacists got or-
ganized fairly early on.
e trade creditors coalesced largely
through the efforts of Lou Brzezinski of
Blaney McMurtry LLP in Toronto, who
resorted to a unique strategy of engage-
ment with Target's suppliers through social
media, providing timely and reliable in-
formation by way of a dedicated website, a
blog and several podcasts.
Brzezinski teamed with Melvyn Solmon
of Solmon Rothbart in the Toronto office
of Goodman LLP, who also represented
various trade creditors. e two lawyers
convinced Justice Morawetz to allow them
to investigate the events that led up to the
"The witness Target put forward knew nothing, saying
that his evidence basically represented what he had been
told. But somebody had to know what was going
on and they had to have had an exit plan."
LINDA GALESSIERE
>
MCLEAN & KERR LLP
