Lexpert Magazine

48 LEXPERT MAGAZINE | JULY/AUGUST 2016 | ART OF THE CASE | chance of success, as it could not, in this form, be sanctioned," Justice Morawetz stated in his reasons. Justice Morawetz eviscerated Target's position. "In my view, there was never any doubt that Target Canada and Target Corporation were aware of the implica- tions of paragraph 19A and by proposing this Plan, Target Canada and Target Cor- poration seek to override the provisions of paragraph 19A," he wrote. "ey ask the court to let them back out of their binding agreement aer having received the benefit of performance by the landlords. ey ask the court to let them try to compromise the Landlord Guarantee Claims against Target Corporation aer promising not to do that very thing in these proceedings. ey ask the court to let them eliminate a court order to which they consented with- out proving that they have any grounds to rescind the order. In my view, it is simply not appropriate to proceed with the Plan that requires such an alteration." Target's argument, moreover, that the guarantee issue, among others, could be debated at the sanction hearing was not an attractive alternative because "it merely postpones the inevitable result, namely the conclusion that this Plan contravenes court orders and cannot be considered to be fair and reasonable in its treatment of the Ob- jecting Landlords." Insolvency lawyers say it's rare for a court to reject a course of action supported by the monitor. "e general theory is that the monitor gets its way," says one lawyer. e press didn't do Target any favours either. "Court rules Target Canada tried to use insolvency laws to avoid landlord losses," screamed one headline from e Globe and Mail. Strategically, then, the landlords had scored big. "e leverage dynamics certainly changed at that point," Sandler says. "But they also reinvigorated us and led us to in CCAA proceedings are not uncommon, Carfagnini adds, because their roles are of- ten misunderstood. "ere is no functional equivalent for CCAA monitors in Canada or the US," he says. "ey are not trustees in bankruptcy whose job it is to represent the creditors. ey are officers of the court who represent all the stakeholders. As such, they have wide powers to oversee and direct the process, with the ultimate goal of get- ting an acceptable plan approved pursuant to the will of the majority." at, Carfagnini maintains, is exactly what the Monitor in this case was trying to do by advancing the Plan to a creditors' vote. "We attempted to balance everyone's interests, including keeping alive a process that allowed the subordination of Target's intercompany debt to remain in place and for all the creditors to have the right to vote on the Plan," he says. "It's a bit hollow for certain landlords who held parent guar- antees of their entire claims to be critical when they were not at risk and especially when the process ultimately worked to their advantage." It's an open question, however, whether the process would have worked quite as well to the landlords' advantage had they not opposed the Plan's filing, a move that ultimately resulted in a ruling from Justice Morawetz in January 2016 denying leave to send the Plan to a vote. "Simply put, I am of the view that this Plan does not have even a reasonable push harder for a commercially reason- able resolution." LESS THAN TWO MONTHS aer Jus- tice Morawetz's reasons were released, the landlords and Target settled. "One of the remarkable things about this was getting all the landlords, many of whom were in different economic posi- tions, to agree to a deal outside of the court process," Swartz says. Galessiere's contribution, it appears, was key. "Linda made a Herculean effort by leading the charge to build consensus among the landlords," Sandler says. "ere was a huge risk in doing that but she was prepared to take it." e unsecured creditors also gave ground. In the final analysis, they accepted about 10 cents less on the dollar than the first Plan would have given them. eir compromise le more money available for the landlords and contributed significantly to consensus, particularly the agreement of those with guarantees. e messy claims of the pharmacists also took shape with Sasso's formal appoint- ment as their representative counsel to represent their interests in connection with the Claims Process, one ultimately adjudi- cated by Dennis O'Connor, former Associ- ate Chief Justice of Ontario. At the creditors' meeting on May 25, 2016, 1,264 creditors representing more than $550 million in claims voted unani- mously in favour of the Plan. On June 2, Justice Morawetz gave court approval at a sanction hearing. He praised the result and the parties. At press time, Plan implemen- tation and fund distribution was to com- mence in late June. Target is, for all intents and purposes, gone from the Canadian landscape. But the spectre of its failure isn't gone, serv- ing as a precautionary note to the growing number of American chains that seek to do business in Canada and to those with whom they will be dealing. Clearly the new ventures won't all suc- ceed. But hopefully Target's orderly and relatively swi retreat through the CCAA maze will provide some guidance for those that do not, as well as their employees, landlords, suppliers and other creditors. "[My client, Target US, would have achieved a better recovery in a pure liquidation.] Otherwise, Target Corp. was indifferent as between a bankruptcy and a CCAA restructuring." JAY SWARTZ > DAVIES WARD PHILLIPS & VINEBERG LLP Julius Melnitzer is a freelance legal-affairs writer in Toronto.

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