The Hudson’s Bay Company is fighting its senior lenders’ effort to scrap Ruby Liu’s remaining 25 lease acquisitions.

Michael Culhane, the company’s chief operating officer and CFO, said the lenders’ group should not have been surprised by expenses that the Bay has incurred as it proceeds through creditor protection. The lender group is headed by Hilco through its subsidiary Restore Capital.

A court hearing will be held Tuesday to hear the Bay lenders’ argument in favour of scrapping the proposed deal and the company’s claim that it should continue to advance.

Culhane filed a scathing affidavit in the Ontario court overseeing the Bay’s restructuring and wind-down under the Canadian Companies’ Arrangement Act. He also blamed Hilco for at least part of the iconic department-store chain’s plight.

“It is neither fair nor credible for Hilco to feign surprise or seek to criticize the applicants for matters that were foreseeable, inevitable and/or, in many instances, driven by or contributed to by Hilco’s own conduct and commercial decisions,” wrote Culhane in the court document. “Indeed, many of the results about which Hilco now complains are a direct consequence of Hilco’s own actions taken in its various capacities or
were outcomes Hilco knew or should have known could occur when Hilco agreed to and participated in the various processes that it now criticizes,” wrote Culhane.

The lenders have formally asked the court to terminate Liu’s proposed agreement covering the 25 remaining leases former Bay store spaces in B.C., Alberta and Ontario.

In a motion asking the court to terminate the proposed deal, Restore also calls on the court to appoint a new super-monitor. In the latter situation, ReStore wants the court to expand the responsibilities of existing court monitor Alvarez & Marsal.

ReStore CEO Ian Fredericks contends that the Bay’s current level of spending “cannot be justified” and must be managed more effectively. But Culhane said that Hilco is attempting to terminate Liu’s proposed acquisitions due to an intercreditor dispute between the restructuring specialist and Path Finder.

Culhane said the Bay’s proposed deal with Liu should not be terminated, because Hilco participated in, and did not object to, the sale-and-investmen-solicitation and lease-monetization processes that led up to it.

The proposed deal with Liu is unlikely to receive landlord approval. Most of the landlords have advised the court, through Alvarez & Marsal, that they will oppose the proposed agreement and any action that forces them to accept it.

ReStore asserts that the Bay has made needless expenditures as it winds down, and “frittered away” cash provided to make debt payments.

Although a liquidation sale generated $54 million more than expected, the lenders’ projected collateral shortfall has increased, according to ReStore. As a result, the lenders will be repaid at least $29 million less than expected.

But Culhane argues that Hilco’s assertion that the Bay mismanaged the liquidation sale is “misguided.”

Liu is seeking to acquire the leases to launch a new department-store chain bearing her name. She has already acquired three leases in B.C.

All Bay stores and Saks-branded outlets in Canada closed June 1.

Pictured: The since-closed Hudson’s Bay Company store at Conestoga Mall in Kitchener, Ont.

Photo: Shutterstock