Bankruptcy monitor eyes Sears dividends
TORONTO Sears Canada’s bankruptcy monitor is investigating more than a half-billion dollars of controversial dividend payments that the retailer made to its shareholders years before the defunct department store chain was declared insolvent last year.
In a court filing this week, courtappointed bankruptcy monitor FTI Consulting said it had identified “potential transactions of interest” in the ongoing court proceedings, including a $102-million special dividend payment issued to Sears Canada shareholders at the end of 2012 and a $509-million special dividend issued at the end of 2013.
For years afterward, those payments as well as several others stretching back to 2005 were met with consternation by industry observers, who noted that a prime beneficiary of the dividends by virtue of his stake in the company was Eddie Lampert.
Lampert, CEO of U.S.-based Sears Holdings, was the largest shareholder of Sears Canada when it filed for protection from its creditors last June, owning about 45 per cent of the company’s stock along with his hedge fund ESL Investments.
Critics said rather than issuing the dividends, Sears Canada would have been better served by reinvesting the cash, raised from selling a series of plum store leases back to landlords, back into the retailer’s flagging business. Criticism also followed from Sears pensioners, whose lawyers began asking the retailer’s management and directors why shareholders were receiving extraordinary dividends when their pension was in deficit.
“Based on the Monitor’s preliminary findings, the Monitor is of the view that further review of the Transactions of Interest is appropriate,” FTI said in its report filed Monday. “The Monitor is undertaking appropriate steps to gather and review additional relevant information, including engaging with certain independent directors and senior Sears Canada management personnel, who had direct involvement in all or some of the Transactions of Interest.”
The monitor is also looking at why Sears Canada gave up its exclusive right to use the Craftsman tool trademark in Canada when Sears Holdings Corp. sold the Craftsman business to Stanley Black & Decker in March 2017.
The managing directors of FTI did not respond to requests for comment on Tuesday. But a source familiar with the proceedings said that such transactions are typically examined by a court-appointed monitor.