The recent decision of Morawetz R.S.J. in the Target Canada CCAA proceedings is an example of the battle waged between flexibility and commercial benefit and the rules and principles which anchor the process (see; Re Target Canada Co. (2016), 2016 ONSC 316, 2016 CarswellOnt 589 (Ont. S.C.J.)). The decision places an exclamation point on the limits over commercial exigencies governing the process.
Target Canada sought an order authorizing it, among other things, to file a plan which was inconsistent with certain agreements and orders made at the outset of the CCAA proceedings to the detriment of commercial landlords. Under the Plan, Target Corporation (US) would subordinate approximately $5 billion in intercompany claims to the claims of Affected Creditors thereby greatly enhancing projected recoveries.
In early 2015, the landlords had negotiated an agreement with Target Canada, which was enshrined in the Amended and Restated Initial Order, that lease guarantee claims of any landlord against Target Corporation would remain unaffected in the CCAA proceeding. In the same vein, the landlords subsequently negotiated a provision in the Claims Procedure Order likewise protecting their guarantees.
Armed with these protections, the landlords withdrew any objection to the use of the CCAA as a liquidation vehicle and to a lease portfolio sale.
In finding the Plan and meeting order clearly violated the post filing agreements and orders, Justice Morawetz determined there was no basis upon which he could allow the plan to proceed as is. He noted that it is simply inappropriate to change the rules to accommodate current exigencies since no plan which contravened court orders could be considered to be fair and reasonable no matter what the commercial benefits.
The principal stakeholders subsequently resolved their differences, leading to Target Canada’s filing an amended plan, which was accepted for filing on April 13, 2016.
Written by:
Mario Forte, Counsel
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