Billionaire Ruby Liu has been trying to take over 25 former Hudson’s Bay store leases.DARRYL DYCK/The Canadian Press
B.C. billionaire Weihong (Ruby) Liu has lost her legal battle to take over 25 former Hudson’s Bay store leases, after a months-long fight with some of Canada’s most prominent commercial landlords over the fate of those high-profile spaces in their malls.
The court decision, filed on Friday, means that Ms. Liu will not be able to move forward with her plan to launch a chain of department stores named after herself in British Columbia, Alberta and Ontario.
During the contentious process, Ms. Liu accused the landlords of discrimination and their lawyers of “corruption,” while the landlords raised questions about Ms. Liu’s ethics, pointed to her lack of prior experience running a retailer and said her plan was “doomed to fail.”
The case was so complex that the judge took nearly two months to render the decision. In a court filing on Friday, Ontario Superior Court Justice Peter Osborne wrote that the question partly came down to whose interests should be prioritized: those of Hudson’s Bay’s senior lenders who had money owing to them that the transaction would partially pay back, or the landlords who opposed being forced to accept an unwanted tenant in their malls.
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Justice Osborne wrote in his decision that he largely accepted the landlords’ concerns about Ms. Liu’s lack of experience as a retailer, and wrote that the business plan for the stores that she submitted to the court was “deficient.”
“The overall lack of experience at the leadership level represents a significant risk to the operational viability of launching and managing 25 large department stores in the contemplated timeline,” he wrote.
Hudson’s Bay Co. first announced Ms. Liu’s $69.1-million deal to acquire 28 leases in May, after a court-supervised process to auction off the insolvent retailer’s assets. Three of those stores were located in malls owned by Ms. Liu’s company, Central Walk, and she received court approval in July to take over those locations for $6-million.
Her bid for the rest of the leases, however, faced fierce opposition from mall owners, including Cadillac Fairview Corp. Ltd., Oxford Properties and Ivanhoé Cambridge. Only one of the landlords, representing one lease, did not oppose the deal.
“Every one of the counterparty landlords under those remaining leases opposes the assignment and objects to being forced into a long-term commercial relationship with a tenant to whom they never agreed to lease their properties,” Justice Osborne wrote. For example, in the case of Sherway Gardens in Toronto, if renewal rights were exercised, the lease would have continued for another 175 years.
Facing declining sales and struggling with $1.1-billion in debt, Canada’s oldest retailer was granted court protection from its creditors on March 7, under the Companies’ Creditors Arrangement Act, or CCAA. Hudson’s Bay failed to find a buyer or investors for a plan to save even a handful of its stores, and in early June, the 355-year-old company closed all of its locations across the country. Thousands of people lost their jobs as a result.
The auction process for the Bay’s assets was designed to generate proceeds to pay back some of the company’s debt. Senior lenders were unlikely to be repaid in full, and many other creditors, including the retailer’s former vendors and suppliers – some of them small businesses across the country – will not recoup what they are owed.
The CCAA process includes provisions for the forced assignment of leases against the landlords’ wishes. The judge had to take into account whether Ms. Liu’s team would be “able to perform the obligations” of the deal, and whether it would be “appropriate” to assign the leases to her, among other factors.
The leases in question have financial value because department stores such as Hudson’s Bay were able to negotiate favourable lease terms, since they historically functioned as anchor tenants that mall owners relied on to draw in customers.
Those terms generally included below-market rents, renewal rights to extend the lease terms sometimes decades into the future and right of approval over any developments the mall owners wished to make to their sites. Despite that, leases for 62 other former Bay locations received zero bids.
Ms. Liu argued that the landlords opposed her deal partly because they wanted these highly valuable spaces returned to their control, without participating in the auction process. The landlords countered that Ms. Liu would be “unfit, unsuitable and inappropriate” as a retail tenant, and that her business plan was unrealistic.
Ms. Liu and her team often took an unconventional approach to advocating for the court’s approval, including launching a Change.org petition asking for signatures in support, and communicating directly with Justice Osborne. That correspondence was deemed “inappropriate” by the office of the chief justice of the Ontario Superior Court. In those e-mails, Ms. Liu praised the judge’s “integrity and kindness,” referred to him as “a person of justice and strength,” and appealed to him to “please give me a chance” to take over the leases and launch her business.
It was not immediately clear on Friday whether the leases will now be disclaimed and will revert to the landlords’ control, or if bidders who took part in the process and were outbid by Ms. Liu could now have the chance to take over some of the store spaces. Hudson’s Bay spokesperson Tiffany Bourré declined to comment on next steps on Friday.
Ms. Liu was the highest bidder for the store leases, lawyers for Hudson’s Bay told the court during hearings in August. Arguing for its approval, lawyer Maria Konyukhova called Ms. Liu’s deal “the last path to realizing any value” from the leases. The transaction was expected to generate roughly $50-million for senior creditors, after costs.
The court monitor overseeing the process recommended that the court reject the transaction, saying Ms. Liu’s business plan was “not sufficiently developed or realistic” and that there was a risk the new retailer would “be insolvent in the near term.”
The plan Ms. Liu submitted to the court stated that she had set aside $400-million to invest in the new retail business, including $120-million earmarked for overdue repairs and renovations for the stores. Ms. Liu also said she planned to hire roughly 1,800 people.
But lawyers for the landlords argued that she had “drastically” underestimated the costs of running such a business, including the scale of the repairs needed, and the capital needed to buy inventory to stock the stores and hire hundreds of employees.
Justice Osborne’s decision also rejected a motion from one of the senior lenders seeking a “super monitor” to take over the operations of the failed retailer. The lender had accused Hudson’s Bay of mismanaging the wind-down of the business to the detriment of its lenders. The decision did approve a $4-million payment of some of the money that was owed to that lender.
Editor’s note: This story has been updated to clarify the example of Sherway Gardens in Toronto and what would happen to their lease if renewal rights were exercised.