Ex-CEO says Sears Canada could have survived
Brandon Stranzl claims restructuring hindered by proposed plan that skewed toward liquidation
In his first press conference since Sears Canada sought creditor protection in June, former executive chairman Brandon Stranzl said Monday that his plan to save Sears would have worked had it been given more time.
“I had put together a well-reasoned, thoughtfully constructed plan to save Sears Canada and to keep it as a going concern,” said Stranzl, speaking at a press conference at the communications firm Daisy Group on Bloor St. W.
“The plan was working. Same-store-sales were positive after over a decade of declines and we just ran out of time and resources to continue with the plan to have a going concern.”
Sears sought protection from creditors on June 22, stating that it hoped to restructure as quickly as possible in 2017 and return to business a better, leaner enterprise.
Instead, all the stores are being liquidated or have already been liquidated, a fate Stranzl said could have been avoided.
He said his plan could have preserved as many as 10,000 jobs and also included an agreement to keep contributing to the pension plan — a plan that, as it stands now, has an approximate $270-million shortfall.
Stranzl said he was frustrated by the process of attempting to restructure under the Companies’ Creditors Arrangement Act (CCAA) because the Sears proposal seemed skewed in favour of a liquidation rather than a restructuring.
Under a liquidation, all creditors would get something, Stranzl said.
Under a restructuring, some people would get everything they wanted — for example, employees would keep their jobs, certain suppliers could continue to sell goods to Sears — but other creditors would be left with less than they would have received under a liquidation plan.
The result, Stranzl said, was that he found himself trying to save a business that was being rapidly sold in pieces to satisfy lenders, including 11of the company’s best leases.
Lawyer Lou Brzezinski, an insolvency partner at Blaney McMurtry LLP, re- presenting suppliers, agrees with Stranzl that the Sears proposal was skewed toward liquidation.
“I don’t think the lender gave anyone an opportunity for there to be a real honestto-goodness bid as a going concern,” said Brzezinski.
Sears Canada obtained $450 million in financing to continue operating as it restructured, with Wells Fargo Capital Finance Corporation acting as administrative agent.
Brzezinski said the time frame was too short and contained ‘ridiculous’ conditions, including one stipulating that offers should not have any conditions, making it difficult to secure funding from banks that wanted to see due diligence conditions provisions attached to their money.
Stranzl said that when he arrived at Sears Canada in the middle of 2015, it was burning through operating cash flow at a rate of more than $300 million a year, with only $300 million in cash on the books. The company had to radically cut costs and sell assets just to keep the lights on and pay staff.
“We took costs and capital spending down to the lowest level it had been in the history of the company and that continued all the way to the time of the filing. Frugality was a cost principle that we had embraced. We believed frugality drove innovation,” said Stranzl.
But after Sears Holdings Corp. in the U.S. issued a going concern alert in March — a financial filing a company is required to make if it seems likely that it will be unable to continue meeting its obligations within the next 12 months — Sears Canada ran into trouble with its own lenders and suppliers, triggering the CCAA filing.
Stranzl said he remains proud of the work Sears employees did to reinvigorate the company while he was there.
“We took a company that had been in decline for 10 years and we broke the trend,” Stranzl said.
“We proved to the world that it can be done.”
A spokesperson for Sears Canada declined to comment.
Under liquidation, all of Sears Canada’s creditors would get something, which wouldn’t necessarily be the case if the business was restructured