The Ontario Superior Court has vetoed Target Canada's proposed recovery plan, sending the insolvent United States-owned retail giant back to the drawing board. The decision was issued late Wednesday evening on Jan. 13, 2016.
A judge denied the plan largely because of opposition from landlord creditors who were going to lose a great deal if the proposal was approved. Meanwhile, other creditors were set to receive anywhere from 75 to 85 percent of their money owed.
As a result of the failed bankruptcy proposal, Target Canada will now have to create a new plan for its bankruptcy proceedings, which it initiated on Jan. 15, 2015, approximately one year ago. According to a lawyer representing the landlords who balked at Target's plan, it is not common that a judge will deny a plan before it can be voted on. The attorney said that they will have to return to their negotiations.
Target Canada didn't operate in this country for two years before it filed for bankruptcy. It represented one of the most high-profile corporate retail failures in history. Although Target Canada invested $7 billion into Canadian operations, it soon discovered that no profits would be rendered for five years, so it laid off 17,600 employees and closed its 133 stores three months after making the discovery, leaving landlords in the lurch.
The company's insolvency has hit Target Canada's host of creditors hard. Those creditors include a number of landlords, suppliers and various businesses. Landlords say that Target Corp., the parent of Target Canada, has breached contracts made to guarantee expenses incurred in the event that its Canadian operations failed.
When corporations breach contracts with landlords, the landlords will have every right to seek compensation in court. Matters become more complicated, though, when a company tries to protect itself from creditors by filing bankruptcy. In this case, it will be interesting to see whether the landlords are justly treated in the Target Canada bankruptcy.
Source: The Globe and Mail, "Ontario Superior Court rejects Target Canada’s recovery plan," Marina Strauss, Jan. 13, 2016