The Sears Canada litigation battle is one step closer to closure after the remaining defendants agreed to settle their portion of a case challenging the distribution of $3 billion in dividends to shareholders in the years before Sears received protection under the Companies’ Creditors Arrangement Act, liquidated its assets and closed its Canada retail stores.
On Sept. 7, a settlement was reportedly reached with Edward Lampert, ESL Investments Inc. and the remaining defendants.
A trial was set to begin on Sept. 8, but the judge adjourned the trial due to the proposed settlement. An approval hearing for this proposed settlement has not yet been held.
Former Directors Reach $50M Settlement
A $50 million settlement was reached on July 27 with eight former directors of Sears Canada. Under the terms of the settlement, the former directors agreed to cooperate in the case against the remaining directors.
On Aug. 25, the Superior Court of Justice (Commercial List) approved the settlement with former directors of Sears Canada.
“Following lengthy negotiations in the context of a judicial mediation, the Former Directors and the Plaintiffs have agreed, as a global settlement of all claims that the Plaintiffs may have against the Former Directors and any potential claims that any other person could assert against the Former Directors in respect of Released Claims or related to the subject matter of the Dividend Claims as described in the Director Settlement Agreement, that the Plaintiffs, collectively, would receive $50 million, to be paid by the insurers under the D&O Policies subject to the terms of the Director Settlement Agreement,” the settlement documents state.
In approving this class action lawsuit settlement, the judge found that the deal was fair and reasonable and consistent with the purposes of the Companies’ Creditors Arrangement Act.
“The proposed settlement is also consistent with the purposes of the CCAA as it would reduce the litigation costs to be incurred by the estate of Sears Canada and, in the case of the Monitor Claim, provides an opportunity for recovery on a claim pursuant to Section 36.1 of the CCAA,” the judge wrote.
Sears Canada Litigation Background
In June 2017, a judge granted Sears Canada and several related parties with protection from their creditors, pursuant to the Companies’ Creditors Arrangement Act. Koskie Minsky LLP noted that Sears had not at the time made any changes to retiree pension or health benefits.
In July 2017, the department store company reportedly filed a motion seeking to suspend special payments owing under the registered pension plan, supplemental pension payments, and post-retirement benefits including life insurance, medical and dental benefits.
Sears Canada determined that members who had elected commuted value payments after June 12, 2017 would not receive the full value of their pension entitlements due to an underfunding of the Sears pension plan. The pension plan was reportedly underfunded by $270 million.
A class action settlement was subsequently reached that allowed for the continuation of these benefits through Sept. 30, 2017.
In October 2017, the court issued an order approving a process for the liquidation of the inventory and furniture, fixtures and equipment at all of the remaining Sears Canada stores.
Koskie Minsky reportedly asserted a priority claim against Sears Canada’s estate on behalf of pension plan members, asking them to be paid ahead of other creditors.
According to the court documents, the liquidation process has been completed and all Sears Canada retail locations are now closed.
Sears Canada Pension Plan Underfunded
Koskie Minsky noted that, between 2005 and 2013, Sears Canada paid nearly $3 billion in dividends to shareholders, even as its pension plan was underfunded. After Sears Canada obtained CCAA protection and liquidated its assets, unsecured creditors were reportedly facing recovery of just 0 to 10 cents on the dollar for their claims.
In October 2018, a tentative class action settlement was reached that would set up a trust for Sears Canada pension plan members for approximately $260 million.
Koskie Minsky LLP will serve as Representative Counsel for non-unionized retirees and employees of Sears Canada with respect to pension benefit entitlements under Sears Canada pension and/or retirement plans as well as retiree medical benefits, dental benefits, life insurance benefits, and supplemental pension benefits.
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Class Members are represented by Koskie Minsky LLP.
The Sears Canada Class Action Lawsuits are FTI Consulting Inc. v. ESL Investments Inc., et al., Case No. CV-18-00611219-00CL, Sears Canada Inc. v. ESL Investments Inc., et al., Case No. CV-18-00611214000CL, Morneau Shepell Ltd. v. ESL Investments Inc., et al., Case No. CV-18-00611217-00CL, 1291079 Ontario Limited v. Sears Canada Inc., et al., Case No. CV-19-00617792-00CL, and In the Matter of the Companies’ Creditors Arrangement Act, Case No. CV-17-11846-00CL, in the Ontario Superior Court of Justice, Canada.
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