Ex-CEO says Sears Canada could have sur­vived

Bran­don Stranzl claims re­struc­tur­ing hin­dered by pro­posed plan that skewed to­ward liq­ui­da­tion

Toronto Star - - SMART MONEY & BUSINESS - FRANCINE KOPUN BUSI­NESS RE­PORTER

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

Bran­don Stranzl, for­mer Sears Canada ex­ec­u­tive chair­man, says his plan could have pre­served 10,000 jobs.

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