TORONTO — A group of aggrieved creditors wants to sue the executive officers and directors of Sears Canada for negligence and intends to ask an Ontario judge Friday to schedule a hearing for their motion on whether they can proceed with their claim.
A number of suppliers and construction companies collectively owed millions by the struggling retailer want to make a legal motion to lift the court-ordered stay that protects Sears Canada from paying its creditors during the bankruptcy protection process, in order to allow the companies to pursue a claim of “negligent misrepresentation and oppression” against Sears brass.
The news, contained in a report from Sears Canada’s court-appointed monitor, came on the heels of executive chair Brandon Stranzl’s taking a leave from Sears Canada on Wednesday in order to focus on making his own bid for the ailing retailer.
There were no further details of the proposed motion in the monitor’s report.
A typical negligent misrepresentation claim is akin to malpractice, alleging defendants either knew or ought to have known that they were facing financial difficulties. Plaintiffs seeking the oppression remedy typically claim a company’s board or controlling shareholders disregarded the plaintiffs’ best interests.
Several of the companies who want to make the claim are already on the list of Sears’ creditors, including Rossclair Contractors Inc., owed $581,650, and Traugott Building Contractors Inc., owed $2.75 million.
In its report, Sears Canada’s court-appointed monitor said it had advised the proposed oppression claimants to put off the matter until Sears winds up its court-approved process to sell the business or some of its assets, “in order to conserve the resources of the applicants and the court for asset realization matters.”
The group nevertheless intends to ask for time on Friday to schedule the motion, the monitor noted, the same day that lawyers for a group of Sears employees fired without severance will ask the court to approve a $500,000 “employee hardship fund”.
Lawyers for the former employees reached an agreement last week with Sears Canada and its bankruptcy monitor to form the hardship fund, and will ask a judge to approve a motion on the matter.
The proposed fund will be taken out of some $7.6 million in court-approved retention payments earmarked to ensure the continued employment of 43 senior management and key employees at Sears Canada.
Regardless, “since the commencement of the CCAA [Companies’ Creditors Arrangement Act] proceedings, a number of management employees have resigned or indicated their intention to resign,” the court-appointed monitor said in its report.
The resignation of Zachary James, senior vice president of marketing, and pending resignation of Michael Geddes, senior vice president of merchandise planning and operations, were confirmed this week.
Sears Canada filed for court-appointed protection from its creditors in June under the CCAA, announcing 59 store closures and laying off thousands of employees without severance.
The current stay period expires on Oct. 4, though judges frequently extend the stay periods for insolvent companies operating under CCAA.
Financial Post, with files from Drew Hasselback