Sears liquidation a vindication for pensioners’ move to force pension windup
Employees & retirees saw the writing on the wall, requested a pension plan windup in August
Benefits Canada reports that the decision by Sears Canada employees and retirees to seek a windup of their defined benefit pension plan has been vindicated by this week’s announcement that Sears will close all of its remaining stores and liquidate its assets.
The decision to seek a windup means that employees and pensioners can argue that a deemed trust has been created under Ontario’s Pension Benefits Act. If that argument is accepted, the deemed trust will give pension plan beneficiaries priority over other the company’s other creditors.
As Simon Archer explains:
“If the pensioners succeed with the deemed trust argument, they will get first priority on the proceeds,” says Archer. “If they lose, the pension plan will be an unsecured creditor and will receive only cents on the dollar if anything is left after the secured creditors are paid out.”
Deciding to seek a windup was a difficult decision, given that Sears might have restructured and avoided insolvency. Simon explains what likely tipped the balance in favour of seeking the windup:
“The pensioners asked [the Financial Services Commission of Ontario] to step in, they asked the board of directors to take steps, they tried everything,” says Archer. “Even as people saw the risk of this insolvency coming, the shareholders — and one in particular — were given massive dividends of about $1.5 billion while the pension plan went from surplus to a deficit of $267 million by the end of 2015. Where that kind of money is being extracted from a company that is otherwise close to insolvency and has mounting pension deficits, you can see why the retirees were so focused on protecting the plan.”
Employees and pensioners had expected to go to court on the windup motion later this year. However, Sears’ decision to liquidate will delay that proceeding. However, as Simon notes, “[n]o creditors will be paid any proceeds until the issues in the windup motion are determined.”