Sears retirees asking court for company’s remaining funds for pension deficit

Sears Canada Inc. retirees, through Koskie Minsky LLP, filed a motion in court on Friday seeking the retailer’s remaining cash to help fund their pension shortfall.

While the plan’s deficit sits at $260 million, the company currently holds about $135 million, according to a recent report by FTI Consulting Canada Inc., the court appointed monitor for the retailer’s insolvency. If the motion is successful, the deemed trust, which is created in favour of plan beneficiaries for any deficit in the plan on windup, would receive all the company’s remaining cash.

Read: Sears, Wabush cases put deemed-trust provision back in spotlight

“We’re optimistic of a favourable result at the end of the court process,” says Andrew Hatnay, a partner at Koskie Minsky and representative counsel to the Sears retirees. His firm is asking the court to confirm the application of the deemed trust so funds can be recovered from Sears Canada to offset the loss to the pensioners, who are set to see a 30 per cent reduction to their monthly pension benefits on Aug. 1, he says.

The underfunding of the pension is in addition to the loss of members’ health and life insurance benefits, which were terminated by the company soon after it obtained Companies’ Creditors Arrangement Act  protection, he adds.

The motion is also asking that Morneau Shepell Ltd., the plan’s administrator, be put in charge of the trust. “We expect this motion to be heard in the fall. If successful, we expect that most of the remaining assets of the Sears Canada estate will go towards reducing the windup deficit,” noted a release from the law firm.
 
The scheduling hearing for the motion is taking place on Tuesday. “We expect other creditors to attend and we’ll see what they have to say,” says Hatnay.
 
Read: Sears Canada motions on pension, health benefits ‘concerning to retirees’