Sears Canada Bankruptcy

What is happening to Sears Canada pensioners is what we have been discussing at the last couple of DIPAC Annual General Meetings and why the Canadian Federation of Pensioners (CFP) is putting a lot of effort to change the CCAA to prioritize pension obligations higher up in the liability recognition as opposed to today where pensions are treated as an unsecured creditor.

SEARS CANADA – ANOTHER IMPENDING PENSION DISASTER

Sears Canada is another company on the brink of taking advantage of Canada's weak legislative protection for pensions.

It has been no secret that Sears Canada has been in trouble for several years and recent reports indicate the end is near. The Globe & Mail - Report on Business article. As we have pointed out Canadian legislation allows, perhaps encourages, companies to restructure under the Companies' Creditors Arrangement Act (CCAA). This “act” provides no protection for pensions.

In Sears Canada's case, they were able to sell off their valuable assets such as the credit card business ($2.2 billion) and leases for their most desirable locations ($400 million).They paid dividends to their hedge fund owner ($3.9 billion) and left the pension underfunded by $267 million. In 2013 Sears Canada doubled the compensation of the top five executives (to $4.8 million) and left the pension underfunded.

Under the CCAA this is all water under the bridge. Companies can and do pay their executives significant bonuses and reward shareholders with special dividends as the company spirals to failure. By the time the CCAA is filed assets are drained and the underfunded pension is left underfunded.
Pensions are reduced, often benefits are lost. Pensioners pay the price.

This is another example that highlights why “super-priority” for the unfunded pension liability in restructuring and bankruptcy is so important. This is why GENMO continues to be very active with MPs and the Federal Government. This change would put the pension deficit near the top of claims to be settled and would require companies to fulfill the pension commitment they made to their employees.

We feel that the welfare of vulnerable pensioners is more important than junk bonds and hedge funds.