Last week’s move by Sears Canada Inc. to file for protection under the Companies’ Creditors Arrangement Act wasn’t a surprise for the company’s retirees, says their lawyer.
“The company has been having many challenges for years. Retirees have been engaged with the company for many years,” says Andrew Hatnay of Koskie Minsky LLP, the firm appointed as representative counsel for all of Sears Canada’s retirees.
The initial court order filed Thursday requires the company to pay all outstanding and future wages, as well as health and pension benefits, “to the extent that such expenses are . . . payable by the Sears Canada entities,” he says.
Read: Sears Canada seeking to suspend special payments as pension found to be 81% funded
But the $266.8-million deficit in the company’s defined benefit pension plan is “a significant number,” says Hatnay. “It would mean that in the event the plan is wound up, there’s a good chance of benefit reductions that would occur in the future.”
The company has continued to make contributions for pension and post-retirement health benefits, but on July 13, Sears Canada intends to bring a motion to suspend special payments to the pension plan — which currently total $3.7 million per month, according to the company’s factum in its application for CCAA protection — after June 2017. Sears Canada also plans to bring a motion to suspend retiree health benefits.
“It’s too early to say what position we’d take, but those motions are certainly concerning to retirees,” says Hatnay.
Read: Sears faces $300M retirement benefit shortfall as retailer seeks CCAA protection
Sears Canada has approximately 6,000 retirees, and Hatnay notes some active employees have defined benefit entitlements. Retiree benefits depend on years of service, so some retirees may have pension but not health entitlements.
The court order also approved the company’s key employee retention plan, which allocates a maximum of $9.2 million to give staff members an incentive to stay. Eligible employees include those with “specialized expertise that cannot be easily replicated or replaced,” as well as senior store-level staff who will oversee liquidation of closing locations, according to the company’s factum.
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