In a landmark CCAA proceeding involving Hudson's Bay Company, the court declined to approve the assignment of 25 major retail department store leases across Canada to a new tenant, Ruby Liu Commercial Investment Corp., despite the transaction representing the highest bid and generating approximately $50 million in net proceeds for creditors.
The court found that the proposed assignee failed to meet the reasonableness standard under section 11.3(3) of the CCAA, particularly regarding its ability to perform the substantial and ongoing obligations under the leases.
The decision emphasizes that section 11.3 is an extraordinary power that must be exercised sparingly, and that the court must balance the interests of all stakeholders, including the contractual counterparties (landlords) who would be compelled into a long-term relationship with an untested and undercapitalized purchaser.
The court also rejected the applicants' arguments that certain lease provisions constituted ipso facto clauses violating the anti-deprivation rule and section 34 of the CCAA.
