An Ontario court has put a spotlight on a controversial $1.9-billion debt that insolvent Target Canada says it owes its own property company – and which other creditors fear will "swamp" their own claims.
Justice Geoffrey Morawetz told Ontario Superior Court on Thursday it will seek an open and thorough review of the $1.9-billion inter-company claim – and all other ones – by the court-appointed monitor.
"I agree this has to be a very full, transparent process, not run by Target Canada," Justice Morawetz said after a lawyer for some suppliers warned the $1.9-billion claim could overtake others.
The fight over the $1.9-billion claim comes as creditors race to try to recover what they can in the retailer's insolvency process, which has left suppliers alone with an estimated $400-million of claims. Target Canada, a division of Minneapolis-based Target Corp., filed for court protection from creditors on Jan. 15, saying it would close all its 133 stores by mid-May. In the bankruptcy process, the $1.9-billion inter-company claim makes Target Canada's property firm the chain's single biggest creditor so far, threatening the recoveries of others.
Still, the $1.9-billion claim will not be the only intercompany claim to surface in the insolvency proceedings, a lawyer for Target Canada said.
Tracy Sandler, partner at Osler Hoskin & Harcourt LLP which represents Target Canada, said in a court document the monitor will file a report outlining the nature and amounts of all inter-company claims as part of the wider process. At that point, all stakeholders will be able to respond, she said.
She disagreed with some suppliers' contention that the $1.9-billion claim changes the landscape of the insolvency proceedings. She said Target Canada had called out in its initial filing that there would be an inter-company claim tied to its property company.
Lou Brzezinski, a lawyer at Blaney McMurtry LLP who represents some suppliers, said in an interview he plans to challenge the $1.9-billion and other inter-company claims. As well, he will seek to have the $1.9-billion claim subordinated behind other unsecured creditors' claims, he said.
At the start of the insolvency process, an affiliate of parent Target Corp. agreed to subordinate to other unsecured creditors $3.1-billion it is owed by Target Canada. But it has not said it would subordinate the $1.9-billion claim to other creditors.
In court on Thursday, the judge agreed the monitor will prepare a report when all the inter-company claims are submitted for court approval. "The creditors will have an opportunity to seek any remedy or relief with respect to the inter-company claims," the court said.
The judge also approved a deal to sell leases of 11 of Target Canada's best stores to two of its biggest landlords, Oxford Properties Corp. and Ivanhoe Cambridge Inc. They are owned by two of the country's largest pension plans.
The court agreed to keep secret the sale price, but the monitor and Target Canada said the leases were sold at a "premium" price in a transaction that would benefit creditors.
The sale of the leases triggered the $1.9-billion claim as Target Canada moved to end its agreement with its property company. It oversaw the retailer's store renovations and paid their rent.