A Ontario judge rejected the Hudson Bay restructuring agreement on Saturday night, increasing the likelihood of lenders trying to include the company in the receivers.
Ontario High Court Judge Peter Osborne said in a written ruling released Saturday that he refused to ratify the agreement because it was “neither necessary nor suitable at the moment.”
The agreement doesn’t just save the remaining stores of the department store deadline in April, but it will also hand over the increase in power over the company’s creditor protection process to retailers’ senior secured lenders – Bank of America, Recovery Capital and Pali Light Capital.
The agreement would have been regularly reported to lenders on the weekly budget of the Hudson Bay business, which is a collateral-backed company, allowing them to grab the retailer’s assets to pay for unpaid debts.
If Hudson Bay enters a business deal with the new buyer, the agreement also requires lender approval.
Osborne said his “reluctance” to approve the agreement was partly because the budget did not submit reviews to the court or other stakeholders and would grant lenders with rights and protections to “exclude other stakeholders.”
He also said the court-appointed supervisors guided Hudson Bay through its creditor protection process, sufficient to balance the rights of lenders with the rights of other stakeholders.
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Osborne’s decision marks the latest milestone in the creditor protection process, which has swallowed up Canada’s oldest company to the point of paying landlords and suppliers since acknowledging its financial difficulties on March 7.
As part of those lawsuits, Hudson Bay began liquidating six of its 80 Hudson Bay this week, 13 of its Fifth and three SAKS Fifth Street stores. So far, the six people who have been spared so far have been allocated between Greater Toronto and the larger Montreal area. The company also negotiated rooms to add or delete more stores in liquidation.
The restructuring agreement has been plagued by some because some see it as one of the only things that prevents Hudson Bay lenders from asking the court to include retailers as receivers.
Receiving verification is a process that places a third party in control of the company’s assets to repay creditors.
Attorneys representing Hudson Bay and Senior Guarantee lenders did not immediately comment on Osborne’s Saturday endorsement.
Last week, many lenders claimed to obtain the agreement in court.
“We don’t want to fight. We don’t want to file a takeover application,” Bay Lender Restore Capital’s attorney Linc Rogers said Thursday.
“We are looking at this court and say there is a better way.”
But landlords like Emanue Cambridge, Oxford Real Estate, Kushman and Wakefield, Molgard, Rikan REIT and Kingster Capital believe that the best way forward is not to approve the agreement.
They prefer that the company relies on another process already underway, which will allow Hudson Bay to entertain potential buyers for bids on the entire business or assets.
David Bish, the Cadillac Fairview lawyer, owns 16 properties in Hudson’s Bay, believes accepting the restructuring agreement will hinder retailers’ progress by effectively controlling the company’s future.
Bish charged in court Thursday that “they did not incentivize reorganization.
Rogers, who represents the creditor’s restoration, disagreed.
“We’re asking for protection,” he said. We’re not asking for rewards. ”
At one point, he even offered to amend the agreement to provide Hudson Bay with additional weeks to avoid liquidating six stores, saying his clients were “ready to take additional risks” to spread the situation.
“We don’t want to fight,” he said. “We are looking to solve the problem.”
Hudson’s Bay argued that the court approved the agreement, but its lawyers said it was not the kind of arrangement his clients coveted.
“The protocol lacks time, store count and latitude Hudson’s Bay would prefer it,” said Ashley Taylor.
“It’s not a very satisfying result,” he told the court on Wednesday.
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