This is the third instalment in a series examining large retail insolvencies in Canada from the perspective of various stakeholders. This article discusses insolvencies from the perspective of corporate parents of distressed Canadian retailers.
The first article in the series, focusing on the landlord perspective, was published shortly after Sears Canada Inc.'s (Sears Canada) June 2017 filing under the Companies' Creditors Arrangement Act (Canada) (CCAA) (Canada's principal restructuring statute for large debtor companies and the functional equivalent to Chapter 11 of the U.S. Bankruptcy Code).
The second article, discussing the perspective of suppliers to insolvent retailers, was published in the wake of Toys "R" Us Canada Ltd.'s (Toys "R" Us Canada) cross-border insolvency filing in September 2017. This article follows in the shadow of Sears Canada's inventory liquidation and cessation of operations in January 2018. The Sears Canada shut-down followed a failed attempt to secure a going concern sale.
In recent years, there has been an upward trend in the utilization of the Canadian insolvency regime as a mechanism to "detach" an unprofitable Canadian subsidiary from a larger corporate enterprise. In circumstances where an economically viable parent is hemorrhaging losses as a result of its Canadian subsidiary operating unprofitably, it is not uncommon for the healthy parent to affect an orderly wind-down through an insolvency filing. On the other hand, in circumstances where the entire corporate enterprise is in financial distress, a Canadian insolvency filing may be a financial necessity rather than a strategic option. In these circumstances, value maximization, rather than the preservation of good will, can be the driving force behind the insolvency proceedings. Accordingly, the manner in which a Canadian insolvency filing transpires is heavily influenced by the financial condition of the corporate parent.
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