Nygard liquidation sales a step closer as court approves landlords' request for fee on unpaid rent

Manitoba's Court of Queen's Bench has approved a request to allow landlords of 167 Nygard stores in Canada and the U.S. to charge a fee as a form of security to ensure they can collect millions in unpaid rent.

On Monday, Richter Advisory Group Inc., the receiver in control of nine companies owned by fashion mogul Peter Nygard, said as a result of the COVID-19 pandemic, retail stores were forced to close their doors and have not been paid approximately $2.7 million in rent.

Richter said it worked with 60 affected landlords to come up with an acceptable solution to ensure the liquidation process can begin now that many jurisdictions are allowing retail stores to reopen. 

That solution is the creation of a landlord charge, which effectively allows landlords to secure the payment of any unpaid rent owed since March 18, the date nine Nygard companies went into receivership.

In April, a judge approved the receiver's request to liquidate company assets and sell four pieces of real estate, including Nygard's headquarters in Toronto and Winnipeg.

"Landlords have accepted as the second-best alternative to the payment of rent receiving a landlord's charge as security for payment of monies for any unpaid rent," said Justice James Edmond on Tuesday, as he delivered his decision.

Justice Edmond said he accepted the receiver's argument and was satisfied the landlord charge is fair and just under the circumstances.

"In my view, the proposed landlord terms are sensitive to the claims being advanced by landlords as a result of the COVID-19 pandemic," said Justice Edmond.

He said the landlord charge allows a level of protection for landlords, while also assisting in maximizing the value of the retail inventory during the sale process, which will benefit all stakeholders.

"The landlords continuing to lease the retail store locations to the respondent [the Nygard companies] is critical to the liquidation sale process and the ability of the receiver and the consultant to carry out the process in an effective and efficient manner," said Justice Edmond.

Lawyer Domenico Magisano, who represents Peter Nygard and two of his companies not under receivership, opposed the creation of a landlord charge.

Magisano told the court by teleconference Monday that the store leases are under Nygard International Partnership, and not the responsibility of the other eight Nygard companies under receivership. He also suggested the landlords may be eligible to seek relief through various government sponsored COVID-19 programs.

"While certain government relief may be available, the landlords will not be in a position to make the premises available for the liquidation process without an agreement that is commercially reasonable," Justice Edmond said on Tuesday.

He said had the Nygard companies not defaulted their payments to creditors, and continued leasing the stores, it's possible the landlords may have agreed to defer rent until retail stores were allowed to reopen.

"However, that did not occur and the landlords are owed rent, and their co-operation is required and crucial in these circumstances," said Justice Edmond.

"In my view, the proposed landlords charge provides a mechanism, while not perfect, to allow the liquidation process to proceed with the co-operation of the landlords."

Liquidation sales will be held on a "per store basis" because each jurisdiction has different rules as to when retailers can open in the midst of the COVID-19 pandemic, and the duration of the sales won't exceed 16 weeks, Richter says.