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

U.S. retailer Target Corp. is closer to ending its disastrous foray into Canada.

Its Canadian division, which collapsed into court protection from creditors in early 2015, confirmed on Friday that it has a deal with its former landlords. The settlement opens the way for the retailer to finalize a debt-recovery plan for creditors and emerge from the 14-month-long insolvency proceedings by the summer.

The agreement was made possible partly because U.S. parent Target is contributing an extra amount – estimated by industry sources at roughly $30-million – to the landlords. And the Minneapolis-based retailer agreed to give unsecured creditors "the vast majority" of the $4.5-billion in claims the parent is owed by Target Canada.

The landlords were the largest single group of unsecured creditors, with claims of more than $1.9-billion. They were the major holdout to a plan getting approved late last year.

"It is a huge hurdle to have overcome – getting the consent of all the landlords," said Linda Galessiere, a lawyer at McLean & Kerr LLP who represents five major Target landlords. She was a key negotiator on behalf of all the landlords with Target Canada over the past two months.

The settlement means that Target can wash its hands of its failed 2013 entry into Canada – and its first expansion outside of its U.S. home base – by June 2, if all goes as planned. But it still faces some potential roadblocks, including hundreds of millions of dollars of tax claims from the Canada Revenue Agency that could reduce recoveries of other creditors.

A report last month from the monitor overseeing the insolvency case referred to the CRA claims as being unsubstantiated – and under discussion.

As well, Target's franchised pharmacists are still fighting over how much they can recover. They have filed for $152.8-million of claims, but the monitor has only allowed $18.2-million of those claims as "proven" ones.

Target got court protection on Jan. 15, 2015, letting go 17,600 employees and closing its 133 stores by mid-April. Its unsecured creditors, owed more than $2.6-billion, ranged from some of Canada's largest landlords to thousands of suppliers such as Nintendo, Universal and Mondelez, whose brands include Cadbury and Nabisco.

Under the latest deal, unsecured creditors would receive between about 66 per cent and 77 per cent of their proven claims, Target Canada said. That's about 8 per cent less than what they would have got in the recovery plan in November, which proposed between 75 per cent and 85 per cent.

Lou Brzezinski, a lawyer at Blaney McMurtry LLP who represented some of the big suppliers, said the recovery is more favourable to the unsecured creditors than almost all other ones in such corporate failures. Often those creditors get less than 10 cents on the dollar, he said.

Suppliers "are content that it looks like it's finally come to an end," he said. "It was a long, hard negotiation to get to this resolution."

Many of the landlords had opposed Target Canada's initial recovery plan last November. In an unusual move, Justice Geoffrey Morawetz of Ontario Superior Court threw out the plan in January, saying it reneged on Target's guarantees to some of the landlords to cover their future losses in the event that the retailer collapsed here. Target made those guarantees when it first leased its stores from them years ago.

The latest proposal provides those landlords with close to $50-million in recoveries, roughly twice as much as they would have received in the November plan, sources said.

Target did not disclose the amount it is paying landlords to replace the guarantees, from which the landlords will release the U.S. parent.

Tracy Sandler, a lawyer at Osler Hoskin & Harcourt LLP who represented Target Canada, said the settlement "preserves meaningful value for creditors" and "avoids protracted litigation … This is a very significant milestone."

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