Lexpert Magazine

LEXPERT MAGAZINE | JULY/AUGUST 2016 47 | ART OF THE CASE | insolvency. In particular, they were looking for information about Target's foreknowl- edge of the insolvency and its practices with regard to inventory, particularly 30- day goods. Justice Morawetz also allowed cross-examination of a Target representa- tive with respect to these issues. As it turned out, neither the documen- tation nor the cross-examination, which took place in August 2015, yielded solid evidence of wrongdoing on Target's part. But it did turn out to be embarrassing for the company. "e witness that Target put forward knew nothing, saying that his evidence basically represented what he had been told," Galessiere says. "But somebody had to know what was going on and they had to have had an exit plan." Justice Morawetz went so far as to chide the company in court, saying he expected cooperation from the debtor. at, Brzez- inski believes, was a turning point. "With- in a week Target said they wanted to settle and showed me a proposed term sheet that subordinated the remainder of their inter- company claim," he says. "e suppliers and their counsel, who had been treated as fringe players, suddenly became insid- ers working together with everyone else to strike a deal." It looked like a collaborative effort to settle was in the making. It was not. While an effort was indeed in the making, it was hardly collaborative. In late November, RioCan announced that it had reached a separate settlement with Target US. In return for a payment of $132 million, RioCan would release Tar- get from the guarantees it had given with respect to 18 of RioCan's 26 leases. By then, Target had also settled with Oxford Properties Group Inc. and Ivanhoe Cambridge, which held 11 leases, and with Cadillac Fairview, which held five. "e RioCan deal was a very impor- tant dynamic, a bit of divide and conquer," according to Galessiere. "Once it had taken care of the largest landlords, Target thought it could push the remaining land- lords around." ere's no doubt Target was embold- ened. Four days aer RioCan announced its settlement, Target moved for accep- tance of a "Joint Plan Compromise" and asked that Justice Morawetz set a date for a creditors' vote on the plan's acceptance. A favourable vote would then have sent the process back to Justice Morawetz for court approval at a "sanction hearing." As constructed, the Plan was intended to appeal to "affected creditors" by giving them between 75 and 85 cents on the dol- lar. But it did so at the expense of landlords with guarantees: it included a term releas- ing the lease guarantee claims, thereby ef- fectively revoking Paragraph 19A of Justice Morawetz's amended initial order, which clearly stated that landlords' lease claims would not be affected by the CCAA pro- ceeding or by any plan filed. e Plan also breached the Claims Pro- cedure Order, changing the basis on which landlord claims were to be quantified. "e Plan was generally unfair to land- lords because it removed landlords from the claim process and valued all their claims equally, regardless of the location of the premises or the prospects for and costs of re-renting," Galessiere says. BY ALL ACCOUNTS, this was the first time a company under CCAA protection had reneged on a deal with creditors. "e landlords who had guarantees were outraged because they had bargained for their survival," Sandler confesses. What appeared to outrage the landlords even more was the Monitor's apparent sup- port of Target's Plan. "e court-appointed Monitor's accep- tance of the plan that breached a court or- der was staggering, and it shocked a lot of people," one lawyer says. Galessiere, for one, was distraught at the Monitor's position. "Paragraph 19A needed to be upheld because so much goes on outside the courtroom in a CCAA proceedings," she says. "For the process to work, negotiated terms incorporated in an order have to be respected to the same ex- tent as adjudicated provisions." Some landlords' counsel say the repu- diation of 19A was perhaps the inevitable result of a simmering pot that boiled over. "Of all the files I've been on, this was the worst relationship that creditors have ever had with the Monitor," says one CCAA veteran. "We never felt that the Monitor was giving the creditors a fair shake." Swartz disagrees. "e Monitor worked very hard at pushing back at Target Corp. as to the degree to which it would contrib- ute to the Plan." For his part, Carfagnini is unapologetic. He maintains that critics have mischarac- terized the Monitor's position. "We were keenly alive to the issues around 19A," he says. "In the end, we did not support or oppose the Plan, rather at that point we supported the creditors voting on it since things had changed since they had first ne- gotiated 19A — the parent had agreed to subordinate its claims." Carfagnini goes on to explain that the process allows the Monitor to comment further on the Plan aer the vote and be- fore the sanction hearing. "If the creditors supported the Plan, the time to deal with 19A was at the sanction hearing, when objections could be raised and Justice Morawetz would have to decide whether to give court approval," he says. Criticism of monitors and their counsel "Arguably, the pharmacists were the most affected group. Target set up programs and compensation funds for their own employees, many of the suppliers had the leverage that came from ongoing dealings and relationships with Target US, and many of the landlords had guarantees from the parents." WILLIAM SASSO > SUTTS, STROSBERG LLP

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