Major landlords of failed retailer Target Canada have raised concerns about the U.S. parent's role in the insolvency process – and whether it jeopardizes creditors' collecting what could be billions of dollars they are owed.
RioCan Real Estate Investment Trust, the largest landlord of Target Canada, contends the retailer could be holding back on releasing vital information, possibly putting all creditors at a disadvantage, according to the landlord's submission this week to Ontario Superior Court.
Of particular concern to RioCan and other creditors is more than $1.9-billion of inter-company Target claims and whether that money will stay with U.S.-based Target Corp. or be distributed among other creditors. On Friday, those inter-company claims will be submitted to the monitor overseeing the Target case but will not be publicly disclosed until Aug. 31.
"We just want to make sure that the creditors are not in any way prejudiced," Richard Swan, a lawyer at Bennett Jones LLP who represents RioCan and KingSett Capital Inc., told the court on Thursday.
Target Canada, which filed for creditors' court protection in January and closed all its 133 stores, has so far raised roughly $900-million from selling off properties and inventory. But the retailer has kept creditors in the dark about the extent of its inter-company claims and whether creditors can recoup some of that money to cover their own claims, which have been estimated to be at least $2.2-billion.
Also lurking in the background – outside of the insolvency process – is the issue of guarantees that Target's U.S. parent company has pledged to pay many landlords for losses tied to their closed Target stores.
The landlord lease guarantees are worth hundreds of millions of dollars but Target still has to negotiate the amounts with property owners, Jay Swartz, a lawyer at Davies Ward Phillips & Vineberg LLP who represents the parent company, said in an interview.
"They will get paid," he said. "They might fight over how much they're entitled to … RioCan is probably the most affected, with the biggest claims."
Landlords of 44 leases that Target was unable to find a buyer for – and returned to their property owners – have guarantees, according to court filings.
RioCan and KingSett argued in their latest court document that creditors have "very little information" in the insolvency proceedings and "the main fact-finding litigation has yet to get under way."
The landlords asked Justice Geoffrey Morawetz to refrain from approving a batch of monitor's reports because their contents may eventually come back to bite creditors. The judge on Thursday delayed his decision, asking the parties for further arguments.
"Creditors with concerns and wishing to seek further information should not have to be satisfied with that information being provided to a limited and summary extent by way of monitor's reports," the landlords' court document said.
The monitor countered it has conducted itself properly and provided detailed reports, rejecting the "innuendo" from the landlords, said Jay Carfagnini, a lawyer at Goodmans LLP who represents monitor Alvarez & Marsal Canada Inc.
The landlords noted that Target Canada remained in charge of the property sale process despite the urging of RioCan and other creditors that the sales be run by the monitor, "which was resisted."
"These proceedings are very much about the role played by Target U.S., including in the months leading up to the filing, the choice and dealings with certain of the advisors, the pursuit of the [property sale] and the interaction with the interests of Target U.S. (including, but not limited to, its lease indemnities and guarantees.)
"One of the biggest issues going forward will be inter-company claims and the expected litigation in that regard which will likely involve attempts to discover facts from the last 12 months or more."
The landlords noted that during the property sales, which generated $547.8-million but involved Target returning 75 unsold leases to its landlords, "there was a significant and extensive veil of secrecy with respect to day-to-day matters."
A number of landlords, including RioCan and KingSett, raised concerns with the monitor about the property sale process, the landlords said. "For the most part, those relate to the extent to which Target U.S. has been able to participate in the decision-making process … and to influence certain steps and decisions that have been taken thereunder for its own benefit."