Judge rejects Hudson’s Bay proposal in creditor protection case

On Saturday evening, an Ontario judge dismissed Hudson’s Bay's restructuring agreement, raising the chances that lenders could move to push the company into receivership.

An Ontario judge rejected a Hudson’s Bay restructuring agreement Saturday evening, increasing the likelihood that lenders may seek to push the company into receivership.

In a written decision issued Saturday, Ontario Superior Court judge Peter Osborne said he declined to approve the agreement because it is “neither necessary nor appropriate at this time.”

The agreement wouldn’t have just given the embattled department store an April deadline to rescue its remaining stores but would have also handed increased power over the company’s creditor protection process to the retailer’s senior secured lenders — the Bank of America, Restore Capital and Pathlight Capital.

The agreement would have imposed a weekly budget on the business Hudson’s Bay would have regularly had to report to the lenders — companies whose loans are backed by collateral, thus allowing them to seize the retailer’s assets to cover unpaid debt.

If Hudson’s Bay reached a deal for the business with a new buyer, the agreement would have also required approval from the lenders.

Osborne said he was “reluctant” to approve the agreement in part because the budget wasn’t submitted to the court or other stakeholders to review and would have granted the lenders with rights and protections “to the exclusion of other stakeholders.”

He also said the monitor appointed by the court to help guide Hudson’s Bay through its creditor protection proceedings is sufficient to balance the lenders’ rights with those of other stakeholders.

Osborne’s decision marks the latest milestone in the creditor protection proceedings that have engulfed Canada’s oldest company since it admitted on March 7 that its financial difficulties were so significant it had been deferring payments to landlords and suppliers.