Billionaire Ruby Liu poses with her staff while holding a set of keys to a former Hudson's Bay-owned department store during a "handover ceremony" at Tsawwassen Mills shopping mall, which she owns, on June 26.DARRYL DYCK/The Canadian Press
The legal battle over the future of 25 former Hudson’s Bay stores went before the Ontario Superior Court on Thursday, with the retailer arguing that B.C. billionaire Weihong (Ruby) Liu should be allowed to take over the leases, while a number of major landlords countered that she would be “unfit, unsuitable and inappropriate” as a retail tenant.
The proposed $69.1-million deal, first announced in May, would allow Ms. Liu to launch a chain of new department stores named after herself if it receives court approval. But it has faced fierce opposition from several large mall owners – including Cadillac Fairview Corp. Ltd., Oxford Properties and Ivanhoé Cambridge – who have argued that Ms. Liu lacks the operational experience to run such a large chain of stores, and that her business plan for those locations is not realistic.
A lawyer for the insolvent retailer argued at Thursday’s hearing that rejecting the lease deal would create an unreasonable precedent for such transactions in future bankruptcy cases.
The landlords are asking the court to apply an “absurdly high standard,” said Maria Konyukhova, a lawyer with Stikeman Elliott LLP representing the retailer. She added that Canadian insolvency law requires the court to assess only the “reasonableness” of such an assignment rather than requiring a standard of “perfection or guaranteed success.”
Ms. Liu, the owner of real estate investment company Central Walk, based in Nanaimo, B.C., has already paid $6-million to take over three Hudson’s Bay leases. Those stores are located in B.C. malls that Central Walk owns, meaning that there was no landlord opposition to that deal.
Hudson’s Bay lease sale to Ruby Liu is driven by lender’s push to recover cash: landlords
Ms. Liu’s team has advocated for approval of her plan for the rest of the leases in sometimes unconventional ways, launching a Change.org petition asking Canadians to support her, and even communicating directly with the judge overseeing the retail bankruptcy. The latter move caused the office of the chief justice of the Ontario Superior Court to admonish Ms. Liu for “inappropriate” correspondence, which it warned would be considered “harassing communications” if it continued.
A number of Ms. Liu’s employees crowded into the courtroom on Thursday, some wearing orange and red shirts decorated with the Ruby Liu logo.
Facing a financial crisis and faltering under $1.1-billion in debt, Hudson’s Bay Co. was granted court protection from its creditors under the Companies’ Creditors Arrangement Act on March 7. Unable to secure the financing it needed to save even a handful of its stores – or a buyer for the operations – Canada’s oldest retailer closed all of its 96 Bay, Saks Fifth Avenue and Saks Off 5th locations across the country. Thousands of Canadians lost their jobs as a result.
Ms. Liu was the highest bidder in a court-supervised process to sell off the leases to those shuttered stores.
“This is the last path to realizing any value” from the leases in order to pay down a portion of the Hudson’s Bay debt, Ms. Konyukhova said. The deal would generate roughly $50-million for senior creditors.
One senior lender, Pathlight Capital LP, supports the lease deal. A syndicate of other senior lenders, represented by ReStore Capital LLC, has opposed the deal, arguing that delays in approving the transaction have eaten into their own collateral, and that Hudson’s Bay has mismanaged the wind-down of the business.
Landlord concerns over Hudson’s Bay leases ‘misguided,’ B.C. billionaire Ruby Liu says
The monitor overseeing the proceedings has also recommended that the court reject the transaction, saying Ms. Liu’s business plan “is not sufficiently developed or realistic,” and comes with the risk that the new retail business “will be insolvent in the near term.”
If approved, Ms. Konyukhova argued that the deal would benefit landlords, because of Ms. Liu’s commitment to pay rent on the spaces, and to invest $120-million in overdue repairs and improvements for the stores.
Her plan would also create more than 1,000 jobs to operate the new Ruby Liu stores, Ms. Konyukhova told the court. And it would provide opportunities for product suppliers and other vendors, who were “left in the lurch” by the Bay bankruptcy, she added.
Graham Phoenix, a lawyer with Loopstra Nixon LLP representing Ruby Liu Commercial Investment Corp., told the court on Thursday that Ms. Liu is “a businessperson with a real history of success,” including operating the B.C. malls and building a mall in Shenzhen, China, that she sold for more than $1-billion.
Department stores were once highly desirable tenants for mall landlords, and because of that, Hudson’s Bay was able to negotiate leases carrying advantages that are unheard of for other retailers – including paying below-market rent, having the right to veto any redevelopment a landlord may want to pursue for their malls, and renewal rights that extend the lease terms for decades into the future in some cases.
The landlords have declined to object to lease assignments in hundreds of other retail insolvencies, said Jeremy Opolsky, a lawyer with Torys LLP representing Cadillac Fairview, adding that they are doing so now because Ms. Liu is not an appropriate tenant. “This assignment is a bad deal,” he said.
Mr. Opolsky argued that Ms. Liu’s financial projections for the business are unrealistic for the scope of the repairs and renovations needed in the spaces, and that the projections were also partly based on prior performance of Hudson’s Bay – which is not comparable to a brand new retailer.
Approving the deal would amount to “forcing the landlords to work with someone they don’t trust,” he said.
“If I’m the third generation or fourth generation of a Canadian company, they will trust me,” Ms. Liu said after the hearing, speaking in Mandarin while Central Walk chief executive officer Linda Qin translated. “But because I’m an outsider, I come from China. So that’s why they don’t trust me. They don’t give me a chance.”