The court-appointed monitor in the Sears Canada insolvency case said the retailer has “limited flexibility” to pursue options that would allow it to continue to stay in business.
The company is facing mounting financial obligations, continuing operating losses and the upcoming holiday season, the monitor noted in its third report to Ontario Superior Court, dated Oct. 2. There may not even be enough time to reach an acceptable deal with a buyer group headed by Sears’ executive chairman, Brandon Stranzl.
READ MORE: Sears Canada to shutter 10 more stores across country
Stranzl stepped away from his duties in August in order to assemble a bid to purchase the retailer as a going concern.
But the monitor’s report says the Stranzl group’s initial proposal to buy the business would provide unsecured creditors with less than selling off Sears Canada’s assets piece by piece and liquidation of its remaining inventory would.
READ MORE: Head of Sears Canada will step down in order to bid for retailer
Sears’ current obligations to some of its lenders would also require it start to liquidate inventory at all stores “in the very near future,” according to the report.
However, the monitor also noted that a lawyer for the Stranzl group has indicated that a revised proposal will be submitted.
An extension of court protection until Nov. 7 would provide Sears with more time to decide which major steps to take, the report said. The current court protection ends Oct. 4.
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WATCH: Former Sears Canada employees fighting for benefits
Employee Hardship Fund is running short
The monitor also noted that a $500,000 Employee Hardship Fund that was to help workers who were laid off with no severance is possibly facing a shortfall of $200,000.
READ MORE: Toronto judge approves hardship fund for former Sears Canada employees
The money was set to come from the $7.6 million in retention bonuses that the retailer pledged for executives and senior managers at its Toronto head office.
The first tranche of those funds was paid out on Aug. 8, with a portion of it flowing into the Hardship Fund. But when a second instalment was processed on Sept. 25, Sears Canada continued to hold onto the money that had been previously allocated to the fund.
That’s because there is “uncertainty” about whether the recipient of the funds who had volunteered to donate some of its share to the employee fund still intends to do so, according to the monitor.
The hardship fund was “designed to assist people in situations of precarious hardship, which is to say they are without sufficient resources and are experiencing genuine hardship,” according to Susan Ursel, who represents the current and former employees.
WATCH: Sears Canada raises ‘significant doubt’ about its future
So far, 15 of 22 applications to the fund have been approved, with $35,000 distributed to eligible former employees.
However, to add insult to injury, those who received the money may be no better off for it. The funds, in fact, are considered earnings, which would reduce or eliminate any Employment Insurance benefits they are receiving.
The employees’ representative is in talks with Service Canada about this, according to the report.
Sears Canada said Sept. 29 it would shutter 10 more stores, which affecting about 1,200 people.
READ MORE: Sears Canada slashing about 2,900 jobs, closing 59 locations across country
The retailer had previously announced the closing of 59 stores across Canada, affecting approximately 2,900 employees.
– With files from the Canadian Press
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