Canadian Lawyer

June 2015

The most widely read magazine for Canadian lawyers

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w w w . C A N A D I A N L a w y e r m a g . c o m J U N E 2 0 1 5 43 he overall financial situation for Target Corp. was rela- tively positive when it issued its third-quarter results last November. The net earnings before taxes in the first nine months of 2014 for the Minneapolis-based retailer were US$1.5 billion, in a year where it incurred significant financial costs and unfavorable publicity for a large-scale data breach of its credit card and online operations. The profit totals would have been significantly higher, were it not for the net loss of $627 million during that period from its Canadian stores. The numbers were clearly not good, but the commentary provided by Target in its Securities and Exchange Commission filings was somewhat oblique. "The col- lective interaction of a broad array of macroeconomic, competitive and con- sumer behavioral factors, as well as sales mix, makes further precision and analy- sis of sales metrics infeasible," said Target about its Canadian operations. Less than two months later, the parent company decided to "deconsolidate" with its wholly owned subsidiary and Target Canada filed for protection in Ontario Superior Court under the Companies' Creditors Arrangement Act. The deci- sion resulted in the closure of all 133 stores operated by Target Canada and the layoffs of 17,600 employees. It also sparked questions about the use of what was designed as a restructuring statute by a foreign company to liquidate the operations of its Canadian subsidiary, while the parent company is still a going concern. Court documents in the ongoing pro- ceeding also reveal it was the summer of 2014 when lawyers for Target in the U.S. first broached the possibility of a Canadian insolvency filing. The issue continued to be discussed internally at the senior level of the parent company and with strategic advisers and lawyers throughout the fall, although in the court documents, Target says liquidation was always just one possible option. Tracy Sandler, national chairwoman of the insolvency and restructuring group at Osler Hoskin Harcourt LLP and lead counsel for Target Canada in the CCAA proceeding, says the "flexible nature" of the statute "has been very beneficial," to the stakeholders. "It has facilitated, among other things, the establishment of a significant employee trust to assist the employees in dealing with their loss of employment." As well, there has been a "value maximizing inventory liquidation process and a robust real property port- folio sale process." Anthony Duggan, a University of Toronto law professor and co-author of a text on bankruptcy and insolvency law, says the factual matrix behind the Target filing is still unusual within the traditional context of a CCAA proceed- ing. "What makes the Target Canada case distinctive is that the applicants had no intention of preserving the debtor's L E G A L R E P O RT \ I N S O LV E N C Y MATTHEW BILLINGTON CCAA v. BIA Some say the CCCA offers more fl exibility and creativity in liquidation situations than the more rule-based BIA. By Shannon Kari T The Issue Money

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