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People walk passed a closed Target store location on Barton Street East in Hamilton on April 30, 2015.Glenn Lowson/The Globe and Mail

Some creditors of the failed Target Canada, including landlords and pharmacists, are uncertain about what its proposed recovery plan will mean for them, raising questions about whether it will win quick creditor approval.

The plan, filed in court late last week, proposes that many creditors receive 75 to 85 per cent of their "proven" claims. But the complex proposal also says U.S. parent Target Corp. will drop its $1.4-billion intercompany claim (originally valued at $1.9-billion) only if it secures a release from landlords from its lease guarantee obligations that could potentially be worth even more. Instead, the landlords would have to agree to a formula of payments, plus an enhanced "top-up" amount from Target, which is unsatisfactory to some of the landlords.

"Landlords are reviewing the documents and reviewing all of their options," said Linda Galessiere, a lawyer at McLean & Kerr LLP who represents a number of key landlords.

In developing its plan, Target aimed to avoid costly and protracted litigation with creditors while gaining a speedy green light from them. To help reach its goals, Target came to a $132-million settlement with its largest landlord, RioCan Real Estate Investment Trust, in which RioCan released Target from those lease guarantees. The agreement possibly paves the way for Target to win enough votes for the plan to get the nod, but landlord and pharmacist concerns still threaten to derail a fast resolution.

Five landlords will be in court in the next week or so to try to force Target to pay them about $4-million of the guarantees under their leases, underlining a key contentious issue that could thwart plan approval by early next year.

The five landlords "have suffered losses" to date and "will continue to suffer losses until each premise can be re-let to a replacement tenant," Stephen Michniewicz, a senior vice-president at property manager Bentall Kennedy (Canada) LP, said in a court document on behalf of the landlords.

Meanwhile, franchised pharmacists who worked in most of Target Canada's stores – all 133 of which closed by mid-April – are uncertain what the plan holds for them, said Charles Scerbo, a former pharmacist in Winnipeg and vice-president of the Pharmacy Franchisee Association of Canada.

He said the group isn't sure whether its members will be eligible to get 75 to 85 per cent of all their claims. The pharmacists, who worked at Target for roughly two years or less before it abruptly closed after filing for court protection from creditors on Jan. 15, claimed for the remainder of their five-year contracts.

The pharmacists' lawyer, William Sasso of Sutts Strosberg LLP in Windsor, Ont., is to meet with lawyers of Target Canada and its monitor on Wednesday. The pharmacists didn't have the advantage of being a member of the consultative committee that was formed to help the retailer develop a plan, Mr. Scerbo said. The committee worked in secret, with no input from the pharmacists, he said.

The pharmacists had invested tens of thousands of dollars each to set up their operations for Target's much-touted arrival in 2013, encouraged by projections of high-volume prescription sales and heavy shopper traffic that didn't materialize.

Suppliers are big winners in the proposed plan. It helps that many of the major vendors, such as Nintendo, Universal, Mars and Wrigley, also ship to Target in the United States, said Lou Brzezinski, a lawyer at Blaney McMurtry LLP who represents those suppliers.

Target could still win enough votes to get approval for its plan thanks to its agreement with RioCan, which eliminated it from being a major creditor and from voting, Mr. Brzezinski said.

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T-N
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