Sears Canada Inc.’s pensioners reached a settlement last week after they were denied priority over the company’s other creditors.
The settlement is subject to certain conditions before it becomes binding, according to a news release from Koskie Minsky LLP, the firm representing Sears’ retirees in the proceedings. The firm is dropping the deemed trust option it was pursuing that would have placed pensioners as priority creditors, referring to the legal expenses and uncertainty of outcome that accompany the strategy.
“At this stage, the vast majority of assets of Sears Canada have been sold and there is only expected to be about $180 million available for distribution to all of Sears Canada creditors,” noted a release from the firm. “Borrowing from economic theory, the law of diminishing returns applies in this case. Despite its merits, the pension deficit deemed trust claim was opposed by the monitor and other creditors and would have likely led to protracted litigation and appeals.”
The retirees’ total claim on the estate comes to about $1.2 billion, the release noted. The settlement is treating the $260 pension deficit claim at 2.5 times its sum, at $650 million. In addition, the claim includes retirees’ terminated health and insurance claims, about $421 million; the purchase discount claim, $13.7 million; and the unfunded supplemental pension claim, an amount currently being settled with the monitor.