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Saks’s Parent Company Denies Accusations from Lenders of Conducting a Secret Corporate Shell Game

Hudson’s Bay (HBC), the Canadian retail company that owns Saks, among other high-end stores, has been sued by lenders who claim the reorganization of the company that happened earlier this year was conducted in an attempt to set up a secret corporate shell game that has robbed the credit that exists as insurance on the $850 million loan the plaintiffs have invested in the company.

The lawsuit centers around the fact that, as the owner of stores like Saks and Lord & Taylor, HBC was responsible for guaranteeing payment on all loans for the stores, including making sure the rent was paid if the stores themselves were in financial distress or unable to make rent for any other reason.

Earlier this year, HBC formed a new Bermuda corporation, which is owned by shareholders with a controlling interest in HBC, as well as executives at the highest levels of HBC’s corporate hierarchy. According to the plaintiff, Situs Holdings, this transfer of assets is not only improper but also violates the loan agreement and puts at risk the company’s ability to repay the loan.

HBC denies all the allegations, claiming the restructuring amounted to little more than a change in name and some paper shuffling. It also alleges that Situs never had any claim on the assets of HBC that were reassigned in the course of the restructuring process. The Canadian retail company insists that Situs’s reaction to the restructuring is far beyond what the restructuring actually accomplishes and that the plaintiff’s claims that HBC allegedly conducted this restructuring in secret, deliberately keeping it concealed from Situs, are likewise false.

Although HBC maintains that its corporate restructuring amounts to little more than moving assets around on paper (a common enough occurrence in the world of large corporations with multiple subsidiaries), other large brands have been sued for similar actions. The owners of Neiman Marcus recently faced multiple lawsuits from lenders after they reassigned one of their valuable eCommerce brands so that it would be controlled by their private equity sponsors instead of the retail operating company. Similar to Situs’s allegations in their current lawsuit against HBC, Neiman Marcus’s lenders also argued that, by relocating one of the retailer’s valuable assets, Neiman Marcus effectively put the eCommerce shop out of their reach, which allegedly made the lenders’ position more vulnerable when it came to loaning money to Neiman Marcus.

All this comes at a time when rent is a touchy subject all over the country, especially for retailers. Landlords and their commercial tenants are discussing, negotiating, and sometimes suing over unpaid rent while retailers try to find ways to free up some cash in the wake of an unprecedented number of store closures and drastically reduced sales as a direct response to the current pandemic.

Despite having recently defaulted on $7.4 million worth of loans on HBC property, the Canadian retailer insists that Situs is overreacting and that the two companies were in the middle of negotiating the terms of the missed payments when Situs filed their lawsuit.

At Lubin Austermuehle, we’re all business when it comes to offering the highest level of quality service to businesses engaged in complex disputes, whether it’s shareholder oppression, breach of contract, defamation and far more. We’re also class action attorneys who have earned a reputation for victories, including what Crain’s Chicago Business called “the largest class action settlement in Illinois.” From Naperville to the North Side, we are here for you. Call and take advantage of our FREE consultation where we can discuss your specific needs and wishes and our ability to meet them. Contact us here or call us on our locally number at 630-333-0333.

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