Sears re­tirees seek trustee in bid to claw back mil­lions in div­i­dends

For­mer staff at de­funct re­tailer are owed an es­ti­mated $400M in un­paid ben­e­fits

Saskatoon StarPhoenix - - YOU - HOL­LIE SHAW hshaw@na­tion­al­ Twit­­lieKShaw

Sears Canada cred­i­tors could be a step closer in their at­tempt to re­coup some of the $3 bil­lion in con­tro­ver­sial div­i­dends paid out to the com­pany’s share­hold­ers — most no­tably, Sears Hold­ings Corp. chief ex­ec­u­tive Ed­ward Lam­pert — years prior to the de­funct re­tailer’s in­sol­vency fil­ing last June.

Lawyers act­ing for the for­mer re­tailer’s pen­sion­ers will make a mo­tion on Thurs­day to ap­point a lit­i­ga­tion trustee in Sears Canada’s bank­ruptcy process, who will look at ways to in­crease the pool of avail­able funds for cred­i­tors.

At is­sue for the pen­sion­ers are about $2.9 bil­lion in spe­cial div­i­dends paid out to Sears Canada’s share­hold­ers be­tween 2005 and 2013, “de­spite the com­pany ’s con­tin­ued fi­nan­cial de­te­ri­o­ra­tion” and while the com­pany’s pen­sion plan was un­der­funded, ac­cord­ing to a court af­fi­davit from for­mer ex­ec­u­tive Wil­liam Turner, head of the Sears Canada Re­tiree Group.

Court fil­ings sug­gest the pen­sion plan is un­der­funded by $267 mil­lion and re­tirees are also out an es­ti­mated $400 mil­lion in un­paid health and life in­sur­ance ben­e­fits.

Re­tirees, mean­while, have been warned by the plan ad­min­is­tra­tor to ex­pect a future re­duc­tion in their monthly pen­sion cheques.

Last month FTI Con­sult­ing, Sears Canada’s mon­i­tor in bank­ruptcy, raised the is­sue of in­ves­ti­gat­ing two par­tic­u­lar spe­cial div­i­dends paid to Sears Canada share­hold­ers as “po­ten­tial trans­ac­tions of in­ter­est” that re­quired fur­ther ex­am­i­na­tion: a $102-mil­lion pay­ment is­sued at the end of 2012 and a $509-mil­lion spe­cial div­i­dend is­sued at the end of 2013.

The com­pany’s pen­sion plan had been un­der­funded on a windup ba­sis since 2008.

Lawyers for the re­tirees had raised con­cerns about the spe­cial div­i­dends and, in 2014, be­gan ask­ing Sears Canada and the Fi­nan­cial Ser­vices Com­mis­sion of On­tario (FSCO) to wind up the pen­sion plan.

A class-ac­tion law­suit filed in 2015 on be­half of Sears’ Home­town dealer stores also took is­sue with the spe­cial div­i­dends, ar­gu­ing Sears Canada’s board of direc­tors had ap­proved the half-bil­lion 2013 pay­out de­spite know­ing the Home­town deal­ers had filed a sep­a­rate $100-mil­lion class ac­tion ear­lier in 2013.

“A lit­i­ga­tion trustee ap­pointed by the Court will be in a po­si­tion to re­view and con­sider the uni­verse of po­ten­tial lit­i­ga­tion paths that cur­rently ex­ist or may be brought,” says the mo­tion to ap­point a lit­i­ga­tion trustee from law firm Koskie Min­sky, which acts on be­half of Sears’ re­tirees.

But not all of the stake­hold­ers in the in­sol­vency pro­ceed­ings agree that judge Frank New­bould, the trustee sug­gested and ap­proved by pen­sion­ers, is the best can­di­date for the role.

“There is no con­sen­sus on the se­lec­tion of a lit­i­ga­tion in­spec­tor/ trustee and that lack of con­sen­sus has im­peded dis­cus­sion about the ap­pro­pri­ate scope of the man­date and other pro­ce­du­ral is­sues,” FTI said in a re­port this week.

The mon­i­tor said FSCO and pen­sion plan ad­min­is­tra­tor Morneau She­p­ell be­lieve New­bould could present a con­flict of in­ter­est as a trustee be­cause the for­mer judge is a mem­ber of the law firm that rep­re­sents a sig­nif­i­cant cred­i­tor, shop­ping mall owner and de­vel­oper Ox­ford Prop­er­ties.

Some cred­i­tors might have con­cerns about the role of the lit­i­ga­tion trustee and how ex­ten­sively they are re­quired to co-op­er­ate “to the ex­tent they may be de­fen­dants in future lit­i­ga­tion pur­sued by the lit­i­ga­tion in­spec­tor/trustee,” the mon­i­tor added.

Lam­pert, who had a 45-per­cent stake in Sears Canada along with his hedge fund ESL when the depart­ment store chain filed for bank­ruptcy pro­tec­tion last June, weighed in on the is­sue in a blog post this Sun­day.

He said Sears Canada was flush with cash when the 2012 and 2013 spe­cial div­i­dends were is­sued; Sears Canada had re­cently sold valu­able store leases back to land­lords, paving the way for Nord­strom to en­ter Canada.

The U.S.-based Sears Hold­ings CEO em­pha­sized that he had never served as a di­rec­tor or of­fi­cer of Sears Canada.

A state­ment from Sears Hold­ings, which di­vested the bulk of its con­trol­ling stake in Sears Canada in 2014, said in an emailed state­ment that as a share­holder it re­ceived div­i­dends “that were duly au­tho­rized by Sears Canada’s Board of Direc­tors dur­ing a time when Sears Canada was clearly sol­vent,” with min­i­mal debt and $514 mil­lion in cash on its bal­ance sheet after the fi­nal div­i­dend pay­ment was made in 2013.

“We be­lieve any at­tempt to re­claim those div­i­dends would be un­founded. In declar­ing the div­i­dends, the Board of Direc­tors was at all times act­ing con­sis­tent with its du­ties to Sears Canada.”

We be­lieve any at­tempt to re­claim those div­i­dends would be un­founded.


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