In an earlier blog, we wrote how Sears Canada had engaged federal bankruptcy and insolvency legislation in to buy time while its leadership formulated a plan to restructure the company. The plan has now arrived.

Sears Canada executive chairman, Brandon Stranzl, has fielded a plan to save a small portion of the company. The plan, if approved by creditors, could save upwards of 7,000 jobs across 60 stores. 59 stores have already been liquidated.

Under the Companies' Creditors Arrangement Act (CCAA), Sears' creditors must approve of the plan, called an arrangement or compromise under the Act, before the court decides whether or not to sanction the deal. Under s. 6(1) of the Act, this requires the approval of ½ in number of each 'class' of creditors representing ⅔ of value held by that 'class' (called the 'double majority rule').

Creditors are grouped according to 'class' which is based around a 'commonality of interest' which assesses how the proposed plan impacts like groups of creditors (See Woodward's Ltd., 1993 CanLII 870 (BC SC)). Creditors that the plan treats similarly are grouped together and form a class. The classes then vote, subject to the double majority rule, and if each class approves the plan, the plan is put to the court for final sanctioning.

The court then decides whether it should sanction the arrangement. The court bases its decision on a procedural and substantive inquiry. First, the court will look to see that the procedural components of the Act are met (usually regarding the conduct of meetings) before satisfying itself that the mandatory substantive provisions regarding wage claims and crown dues have been met. Last, the court evaluates whether or not the deal is truly 'fair and reasonable' (see Wellington Building Corporation Ltd., 1934 CanLII 93 (ON SC)) from the perspective of a general body of creditors.

In any event, we will have to wait to see if the plan comes through by October 19th—the date in which Sears could be liquidated if no deal is reached.

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