Ontario Hudson's Bay locations that were to remain open might have to close

An Ontario judge's recent decision has raised doubts over the fate of Hudson's Bay stores in the province, including those that were set to remain open, and increases the chance that lenders might seek to push the company into receivership.

Justice Peter Osborne of the Superior Court of Justice has rejected a restructuring agreement proposed by the department store’s major lenders, signaling the potential for even further financial turmoil.

On Saturday, Justice Osborne issued a written ruling stating that the proposed restructuring plan was "neither necessary nor appropriate at this time." The plan had been put forward in an effort to maximize liquidation proceeds and recover some of the millions owed to Hudson's Bay's senior lenders — Bank of America, Pathlight Capital, and Restore Capital — while also providing room for the company to restructure.

During a Thursday hearing, lawyers for landlords opposed the restructuring agreement that was initiated by the retailer and its lenders. Under the agreement, Hudson's Bay would have been required to liquidate the six stores it wanted to keep open if no solution was found to save the business by April 7.

The six stores included the flagship location at Yonge and Queen streets, as well as stores at Yorkdale Mall, Hillcrest Mall, and three locations in Quebec.

Last week, the three major lenders told the court that they could apply to lift the creditor protection under the Companies' Creditors Arrangement Act if the proposal was rejected, which would allow them to apply for a receiver to take control of the company.

Lawyers argued that the two-week timeline would make it impossible to find potential buyers or investors for the six remaining stores, and also argued that the agreement would eliminate any chance of exploring other restructuring opportunities.

The deal also included a weekly budget for Hudson's Bay, which the company would have been required to regularly report to its lenders. The lenders, whose loans are backed by collateral, would have had the ability to seize Hudson's Bay's assets if the company failed to meet its financial obligations. If the company managed to secure a buyer, the agreement would have required lender approval.

Justice Osborne expressed reluctance in approving the plan, partly because the budget had not been submitted to the court or other stakeholders for review.

Hudson's Bay's financial struggles have been ongoing, and the company admitted on March 7 that it had been deferring payments to landlords and suppliers. On March 21, the court authorized the liquidation of most of its stores, including 74 Bay locations (36 in Ontario), three Saks Fifth Avenue stores, and 13 Saks Off 5th stores. The company also began liquidating nearly half a billion dollars worth of inventory.

The restructuring agreement was considered especially crucial, since without it, the senior lenders might push the court to take more drastic action, such as putting the company into receivership.