Insolvent Sears Canada Inc., which closed its last remaining stores over the weekend, has paid almost $53-million to lawyers and other advisers in its court creditors' process.
More than half of those payments, which were disclosed in a court document this week, went to Sears's law firm, Osler Hoskin & Harcourt LLP – which got more than $14-million – while its financial adviser, BMO Nesbitt Burns, got about the same (just more than $14-million.)
The payments underscore how professional firms fare in the complex court procedures of faltering companies amid the winners and losers in the insolvency process.
The bills for professional fees in the long-running bankruptcy proceedings of Nortel Networks Corp. topped $1-billion (U.S.) by 2013, and were expected to climb even more as the case made its way through the courts in subsequent years.
As Sears clears up its affairs, it still faces a battle with its retirees, who are pushing for the wind-up of their defined-benefit pension plan – which is underfunded by $266.8-million (Canadian) – while other creditors object to the pensioners getting priority treatment in the retailer's recovery payments.
As of Jan. 6, Sears had $84.2-million to divvy up among creditors, the latest monitor's report says.
In the five weeks ended Jan. 6, which includes the peak holiday shopping season, Sears failed to hit its sales target, says the report from FTI Consulting Canada Inc., the court-appointed monitor overseeing the Sears wind-down. Sears generated $58.6-million in receipts in that period, which fell below its $75.3-million forecast, the report says.
Sears got court protection from its creditors on June 22, burdened with liabilities of $1.108-billion (as of April 29) and total assets of $1.187-billion, according to previous filings.
When the court process started under the Companies' Creditors Arrangement Act (CCAA) in June, Sears secured up to about $450-million of crucial debtor-in-possession (DIP) financing from its two existing lenders.
The lenders got a "super-priority charge," which gives them first dibs on the proceeds from Sears's assets and property. There are still a handful of properties to sell, including its warehouse in Brockville, Ont., lawyers in the case say.
Meanwhile, operators of Sears's former Hometown stores plan to challenge the pensioners, arguing the Hometown dealers should have equal access to any recoveries. In 2014, the Hometown operators won class-action status for a $100-million lawsuit that claimed Sears made it virtually impossible for them to run their outlets profitably.
About a year earlier, the Hometown operators legally challenged Sears for declaring an extraordinary $509-million dividend after the struggling retailer sold some of its best assets, such as its Toronto Eaton Centre store lease, alleging the move would eventually lead to Sears's insolvency to the detriment of creditors.
Now, the monitor says it is reviewing the controversial $509-million dividend payment to shareholders in 2013, as well as a $102-million dividend a year earlier. A good portion of those payments went to the U.S. hedge fund run by Edward Lampert, who is chief executive of Sears Holdings Corp. and was a key shareholder of Sears Canada at the time.
Next week, lawyers for the Hometown dealers plan to return to court to ask Sears for $250,000 to evaluate their claim against the retailer. The loan would be repaid from the proceeds payable to the Hometown operators, said Lou Brzezinski, partner at law firm Blaney McMurtry LLP, which represents the dealers.