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Target bounced cheques for about $25.6-million.

Fred Lum/The Globe and Mail

Insolvent retailer Target Canada seriously considered winding down its operations under a court-supervised process as early as last October – more than three months before it filed for court protection from its creditors.

Even earlier – last September – the U.S.-owned retailer contacted its law firm, Osler Hoskin & Harcourt LLP, to consider "strategic options," including quitting Canada, according to documents filed late Monday in Ontario Superior Court.

The new information, which had been requested by some suppliers, is critical to the vendors' bid to retrieve money for goods they shipped to Target Canada in the 30 days before the retailer filed for court protection on Jan. 15.

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Knowing that it could be winding down its operations, the company should have reduced its orders to suppliers in the fall rather than pump them up, Lou Brzezinski, a lawyer at Blaney McMurtry LLP who represents some of the suppliers, said in an interview.

"They did not change their ordering habits at all," he said late Monday.

Suppliers were pushing to find out the precise timing of parent Target Corp. executives' decision to pull the plug on its Canadian division, suggesting the retailer avoided paying bills while bulking up on inventory in the 30 days before the filing in order to cash in on subsequent going-out-of-business sales.

Target Canada was granted court protection under the Companies' Creditors Arrangement Act on Jan. 15, owing billions of dollars, – with the largest debt owed to its own property firm – and including an estimated $400-million owed to suppliers. After less than two years in Canada, Target said it wouldn't make a profit here for at least another five years.

By mid-May, it will close all of its 133 stores here, leaving 17,600 employees in Canada out of work. The shutdowns begin this week.

The new documents reveal that Target bounced 1,050 cheques worth about $25.6-million, the filing says. The Globe and Mail has reported cases of unsecured creditors who received "dishonoured" cheques from Target just days after its filing. As a result, some suppliers have alleged the retailer benefited from the timing of its court filing.

For example, Toronto-based market research firm Advitek Inc., which did work for Target, says it was told to switch an invoice from the retailer's U.S.-based parent to Target Canada just days before the filing, leaving the firm with what it said was a $232,328 unpaid claim.

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Advitek's invoices were normally sent to Target's U.S. head office. But two days before Target Canada filed for court protection from creditors, the parent company asked Advitek to "change the invoices to Canada instead," Kathrin Menge, a manager at Target Canada, wrote in an e-mail to her U.S. counterparts.

"I find this very suspicious," Ms. Menge says in the e-mail, which was filed as evidence in the Ontario Superior Court of Justice this week.

The e-mail was dated Jan. 22 – a week after the retailer got court protection and announced it was leaving the country.

Mr. Brzezinski said Monday he is "alarmed" at the extent of the bounced cheques. He said Target has not produced many documents that suppliers have asked for and that he will take advantage of the option to cross-examine Target Canada's legal counsel on other matters.

Target Canada said in its filing that it expected to be "particularly inventory-intensive" between November, 2014 and April, 2015. The retailer's "management was making significant efforts in the fall of 2014 to increase sales on a system-wide basis in order to build momentum through the 2014 holiday season and into the first quarter of 2015."

As part of those efforts, Target "increased its merchandise ordering to ensure that store shelves remained filled" during the holiday period "in order to address the well-publicized out-of-stock issues" that the retailer suffered since its arrival here in March, 2013, the documents say.

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At the same time, the retailer had added nine more stores in 2014, which resulted in the need to order more merchandise, the filing says. Some of the overseas orders had to be placed up to six months in advance, it says.

During consultations in late fall and early winter of 2014, only a small number of employees from U.S. parent Target Corp. and its Canadian division were aware of the considerations, the filing says. And it says Target Canada's most senior merchandising executive was informed of the possibility of a filing on Jan. 6 – just nine days before the retailer was granted court protection. A day before the filing "approximately 223 employees" were aware of the options, it says.

Target Corp.'s board of directors "had little visibility into the strategic review process until just before" it approved the filing on Jan. 14, it says.

"At no time did [Target Canada] or Target Corp. direct any [Target Canada] employee to increase (or reduce) inventory levels as a result of possible or contemplated proceedings under the CCAA or BIA or otherwise," it says. Suppliers have argued that if the proceedings were under the Bankruptcy and Insolvency Act rather than the CCAA, they would have the right to ask for their 30-day goods back, or the value of that inventory.

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