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Receiver to close up to 140 Blockbuster Canada outlets

Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail

The receiver tasked with selling Blockbuster Canada will close stores as it prepares the chain for a new owner, Grant Thornton Ltd. said Tuesday.

Up to 140 of the chain's 400 stores will be shuttered, according to Blockbuster managers who have been briefed on the plans. They will have received their last batch of new releases Tuesday, and inventory will be sold off over the next month.

"While Blockbuster Canada will be consolidating certain stores in the next few weeks, the majority of its stores are continuing to operate in the ordinary course during the process," receiver Michael Creber said in a statement.

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The receiver didn't specify the exact number of stores or their locations, but staff members were told on Friday that the changes were coming. They have already seen their pay periods moved up to weekly from biweekly, and were told not to sell gift certificates that could be redeemed in the future.

Blockbuster Canada was put into receivership earlier this month, and will be sold to pay $70-million in debt racked up by its former parent company. When the U.S. parent was trying to stave off bankruptcy, it used the profitable Canadian operations as collateral to the movie studios it counted on for its new releases.

The parent company was sold in an auction to Dish Network Corp. last month, for $320-million. The sale didn't include the Canadian subsidiary. The movie studios were still owed money after the sale, and turned to the Canadian operations for their cash.

Blockbuster Inc.'s new parents want to sever ties with its former Canadian subsidiary by forcing Blockbuster Canada to rename itself, but the receiver tasked with selling the Canadian chain is asking a U.S. court to ignore the request.

Court filings indicate that Dish Network doesn't want Blockbuster Canada to use the intellectual property it now owns, even though the 400 Canadian stores have been operating under that banner since 1990. It also wants the Canadian chain to stop using any "confidential and proprietary information, business methods, and processes, trademarks, copyrighted materials, software programs and other intangibles."

Saying the name "is critical to Blockbuster Canada's ongoing business operations," receiver Grant Thornton filed a motion in a New York courtroom to block the move, arguing it's up to a Canadian court to determine how the company should operate while in receivership.

It filed for Chapter 15 bankruptcy in the U.S., which protects companies with U.S. ties which are restructuring outside its borders. A hearing will be held on June 2.

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"If Blockbuster Canada were to be deprived of the use of the Intellectual Property, it would have a devastating impact on its business operations," Grant Thornton's request to the court read.

While the U.S. chain was losing money as consumers opted for alternatives such as mail-order DVDs, mall kiosks and Internet services such as Netflix, the Canadian operations had $117-million in assets - including $15-million in cash - when pushed into receivership, according to documents filed last week by Grant Thornton.

While the studios pushed the chain into receivership, 1,300 smaller creditors are also waiting to see if the chain's sale will garner enough to pay all outstanding debt. Anything that reduces the final sale price - such as a name change - could affect how much they ultimately receive.

"Blockbuster Canada intends to vigorously contest the rejection motion," the company said in court papers.

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