TORONTO — Sears Canada could begin a full liquidation of the business as soon as Oct. 19 as the clock runs down on an offer from executive chairman Brandon Stranzl.

Stranzl, who made his latest revised bid for the company on Tuesday night, is the only potential buyer of the distressed retailer’s assets who wants to run the retailer as a going concern.

But it appears he has little time left to strike a bid with Sears and its advisors, as the lenders who have kept the money-losing business afloat since June will ask Ontario Superior Court judge Glenn Hainey on Oct. 13 to approve a liquidation of Sears’ remaining assets. The process to then liquidate locations could start as soon as Oct. 19, with a possible extension to Oct. 26, according to court papers.

“The Stranzl bid may not be executable,” Sears’ lawyer Jeremy Dacks of Osler, Hoskin & Harcourt LLP, told Hainey in a court hearing Wednesday.

“We have a very short fuse on a potential liquidation of the company.”

Sears Canada’s Executive Chairman Brandon Stranzl.

On Tuesday, court papers revealed that Sears is losing millions of dollars a week. Monitor FTI Consulting said that a going concern transaction for Sears could only be pursued if it were done in conjunction with ongoing asset sales aimed at maximizing value for other creditors and stakeholders.

“The lenders have supported this business for a long while,” Joseph Latham, counsel for Wells Fargo, said Wednesday. Those lenders are advocating for a liquidation to start well before Christmas in order to capitalize on the busiest retail season of the year.

“With the holiday season approaching, the company needs to pick a path,” said Orestes Pasparakis of Norton Rose Fulbright, the lawyer for FTI Consulting.

The future of Sears Canada has been uncertain since June, when the Toronto-based retailer filed for bankruptcy protection through the Companies Creditors’ Arrangement Act, announcing the closure of 59 stores and the layoffs off 2,900 employees.

It came after years of dwindling sales and efforts by Stranzl to turn around the company over the prior 18 months with the help of a fresh logo, renovated stores, a revamped website and IT platform and a new off-price section of the business that would compete with the discounts offered by merchants such as Winners.

Sears’ debtor-in possession (DIP) lenders have been issued $2.7 million in default payments to date because of milestones missed by Sears during the court-approved restructuring process, court heard Wednesday. Those milestones, according to court documents, include the failure to select a successful bid for the business by the Sept. 25 deadline, and the failure to commence closing sales for stores not included in the successful bids by Sept. 27.

Susan Ursel, a lawyer representing the concerns of about 3,600 former Sears employees and 14,000 active employees, said her clients are supportive of continued going-concern discussions with Stranzl. Stranzl’s earlier bids were deemed conditional in a number of respects, the monitor said in its report this week.

Until the issue is resolved, Ursel requested that no further default payments be made to the DIP lenders without a court order. “We are spending money on the default that could otherwise (go to creditors and stakeholders),” Ursel said.

Mark Zigler, a lawyer at Koskie Minsky representing Sears pensioners, said his clients don’t oppose a going concern offer “that would put them in an equivalent or better position” than a liquidation.

But Zigler noted that the Sears Canada pension is underfunded by about $270 million, and that employees will have large claims. There have been no cuts to pensions to date, he added.

“It’s the pensioners who will bear the brunt of the cost of continuing this exercise,” he said, if there are delays in dealing with either the Stranzl bid or the liquidation bid.

On Wednesday, Justice Hainey granted Sears’ sale of the appliance chain Corbeil, its SLH transport division, three of its home services businesses, the sale of 12 Sears stores, and the sale of a distribution centre to Indigo Books and Music.

A proposal to sell the Viking trademark to Canadian Tire was adjourned on Wednesday, as another party has emerged to claim a right of first refusal for the trademark, court heard.

Hainey also extended Sears’ court-approved protection from its creditors until Nov. 7.

Financial Post

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