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Court rules Target Canada tried to use insolvency laws to avoid landlord losses

A Canadian flag flies on a vehicle parked outside a Target store in Hamilton, in this January 15, 2015, file photo.

PETER POWER/REUTERS

Target Canada tried to use Canadian insolvency laws to help its U.S. parent sidestep its obligation to cover losses that landlords will potentially incur as a result of the retailer's collapse here, the Ontario Superior Court has ruled.

In throwing out Target's proposed recovery plan for creditors, Justice Geoffrey Morawetz said on Friday the plan contravenes court orders "and cannot be fair and reasonable in its treatment of the objecting landlords. In my view, this plan is improper."

Justice Morawetz directed the parties in the year-long Target Canada insolvency case to schedule a meeting with him within 14 days to try to come up with alternative solutions. As a result, suppliers, landlords and other creditors will have to wait longer to find out how much they can recover in one of this country's largest retail failures.

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The judge "wants to take a hands-on approach" to help resolve the dispute and develop a revised plan, Catherine Francis, a lawyer for some of the landlords, suggested in an interview.

The judge agreed with landlords' arguments that the plan contravened Target Canada's initial court order, which said guarantees made to the landlords to cover their losses in the event of Target's failure would not be compromised. The judge said the plan removed landlords from the claims process, which also violated another court order.

Justice Morawetz said the retailer was trying to use the Companies' Creditors Arrangement Act "as a means to secure a release of Target Corp. from its liabilities under the guarantees in exchange for allowing claims of objecting landlords in amounts calculated under the [plan's] landlord formula amount. The proposal of Target Canada and Target Corp. clearly contravenes the agreement memorialized and enforced" in the initial order.

The judge, who had signalled his decision earlier this week, released his written reasons on Friday.

Landlords who opposed the plan said that without the agreement to ensure their right to the guarantees, they would have considered moving to put Target Canada into full bankruptcy proceedings.

Target Canada had proposed that creditors vote on its recovery plan on Feb. 2.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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