Executive Summary: Key Legal and Evidentiary Issues

• Whether the court should compel the assignment of up to 25 HBC department store leases to Ruby Liu Commercial Investment Corp. (Central Walk) over landlord opposition under s. 11.3 of the CCAA.

• Assessment of the proposed assignee's financial and operational capacity to perform lease obligations, given its status as a shell company backed by a $375 million equity commitment from Ms. Liu and entities she controls.

• Significance of the Monitor's refusal to approve the transaction and the weight of expert evidence (the EY Report and the Revesco Report) challenging the viability of the Purchaser's Business Plan.

• Whether ss. 3.05 and 3.05(A) of the Ivanhoe Cambridge Leases constitute ipso facto clauses violating the common law anti-deprivation rule and s. 34 of the CCAA.

• Application by the FILO Agent for expanded Monitor powers, immediate disclaimer of leases, cost-shifting to Pathlight or the Purchaser, preservation of the Purchaser's deposit, and a $4 million distribution.

• Request for a temporary sealing order over the confidential appendix to the Eighth Report of the Monitor containing a summary of the economic terms of certain bids received for the leases.

Background and factual context

Hudson's Bay Company ("HBC") and its affiliates, the tenants under 25 department store leases for locations across Canada, became insolvent and initiated proceedings under the Companies' Creditors Arrangement Act ("CCAA"). HBC has ceased all operations following a history of approximately 355 years, the stores have been "dark" for months, and HBC's intellectual property, including the name "Hudson's Bay Company," associated logos, and trademarks, have been sold separately to Canadian Tire. Following the court-approved Lease Monetization Process, HBC entered into an amended Asset Purchase Agreement ("APA") dated May 23, 2025 with Ruby Liu Commercial Investment Corp. ("Central Walk" or "the Purchaser") and Weihong (Ruby) Liu as guarantor, for the assignment of up to 25 leases in Ontario, Alberta, and British Columbia. The aggregate purchase price for the leases is $69.1 million, with estimated net proceeds of approximately $50 million. The Business Plan reflected that Ms. Liu and her related companies committed to invest $375 million in equity capital, approximately $120 million in store repairs and renovations over a 12-month period ending August 2026, and an initial inventory investment of approximately $135 million. The Purchaser proposed to hire approximately 1,800 employees and to launch store operations according to three tiers: "Flagship," "Platinum," and "Standard" formats.

The competing motions

HBC sought court approval for the assignment, a declaration that ss. 3.05 and 3.05(A) of the Ivanhoe Cambridge ("IC") Leases violate the common law anti-deprivation rule and s. 34 of the CCAA and are therefore unenforceable, and a temporary sealing order. Pathlight Capital LP, HBC's other senior secured creditor, supported the motion. Every counterparty landlord to the contested lease assignments opposed the motion, including The Cadillac Fairview Corporation, Oxford Properties Group, KingSett Capital Inc., Ivanhoe Cambridge Inc., Primaris Management Inc., QuadReal Property Group, Morguard Investments Limited, and Westcliff Management Ltd. Meanwhile, ReStore Capital, LLC, as FILO Agent on behalf of the FILO Lenders, brought a competing motion seeking expanded Monitor powers, immediate disclaimer of the remaining leases, cost-shifting to Pathlight or the Purchaser, preservation of the Purchaser's deposit, and a $4 million distribution (originally $6 million) to the FILO Agent.

Legal framework applicable to lease assignments

The court analyzed the transaction under two overlapping frameworks: s. 36(3) of the CCAA and the Soundair Principles governing asset sales, and s. 11.3 of the CCAA governing contract assignments. Section 11.3(3) directs the court to consider whether the Monitor approved the proposed assignment, whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations, and whether it would be appropriate to assign the rights and obligations to that person. Drawing on Dundee Oil and Gas, Donnelly Holdings, UrtheCast, and Urbancorp Cumberland, Justice Osborne emphasized that s. 11.3 is "an extraordinary power" that permits the court to require counterparties to an executory contract to accept future performance from somebody they never agreed to deal with, that the reasonableness standard applies throughout the analysis, and that the consent of the contractual counterparty or lack thereof is irrelevant to the analysis.

The court's assessment of the sales process

Justice Osborne found that the Lease Monetization Process was reasonable in the circumstances, that it was followed, and that the Monitor had stated in the Eighth Report that the proposed sale would be more beneficial to creditors than a sale or disposition under a bankruptcy and that the consideration was reasonable and fair. The only element of concern under the s. 36(3) factors and the Soundair Principles related to the effects of the proposed sale on the creditors and other interested parties, which the court addressed in the s. 11.3 analysis.

The Monitor's refusal to approve

The Monitor, Alvarez & Marsal Canada Inc., declined to approve the proposed assignment despite recognizing that the proposed Transaction represented both the highest bid for these assets and the potential for a very material recovery to creditors of approximately $50 million. The court held that although Monitor approval is not mandatory, the Monitor is a court officer and "eyes and ears of the court," and the Monitor's decision was significant in the circumstances.

Ability of the Purchaser to perform

It was not in dispute that the Purchaser itself is effectively a shell company, incorporated for the purposes of the proposed Transaction, with no assets, no history of operations or earnings. While Ms. Liu and certain entities controlled by her provided a $375 million equity commitment, the commitment was made exclusively to the Purchaser, another entity controlled by Ms. Liu, and was expressly unenforceable by third parties. Most of the funds represented as standing behind this equity commitment are not in Canada (they are in Barbados, Hong Kong, and Singapore). The personal guarantee of Ms. Liu in respect of one year of rent obligations was found likely difficult, if not impossible, to enforce in Canada since her personal assets are offshore (in Hong Kong and British Virgin Islands). Two expert reports filed by the landlords—the EY Report by Ms. Sharon Hamilton, President of Ernst & Young Inc., dated August 8, 2025, and the Revesco Report by Mr. Scott R. Lee, founding partner of Revesco Properties Ltd.—were described by the court as "compelling" and were unchallenged by any expert evidence from the Applicants or the Purchaser. The EY Report concluded that projected revenues and gross margins were likely too high, projected operating costs were almost certainly too low, and the projected EBITDA unreasonably assumed store-level EBITDA that is 22 times (2201%) higher than HBC stores had in 2024. By comparison, when Target launched in Canada, it invested $7 billion or $52 million per store, and Nordstrom invested over $59 million per store, while the Purchaser's $375 million equity commitment translates to only $13.4 million per store.

Operational and management concerns

The court identified extensive deficiencies in the Business Plan. The renovation budget of approximately $120 million breaks down to $4.7 million per store or $30.60 per square foot, compared to benchmarks from other Canadian department store retailers (for the period of 2011 to 2024) ranging from $10.9 million to $37.5 million per store, and $87 (Target, 2011) to $329 (Simons, 2024) per square foot. The Business Plan projects the need to hire 1,800 staff for 25 stores (or 72 employees per store), compared to 97 employees per store for HBC, which was regularly criticized for understaffing. The proposed senior leadership was troubling: the Chief Executive Officer had held that office only since May 2025, her most recent experience was as a residential real estate broker, she has no experience in retail or department store management, and her email signature described her as "Assistant to Ms. Liu" as late as May 26, 2025. The Chief Human Resources Officer was an Executive Assistant with Central Walk before working as an early childhood educator. The General Counsel and Senior Vice President of Real Estate, the Vice President, Construction and Facilities, and the new Chief Operating Officer all had no contracts of engagement or employment. The episode involving Mr. Wayne Drummond, a former president of HBC, was described by the court as "startling"—he had been retained only on Saturday, May 31, 2025 to attend landlord meetings for a total of five hours for $3,000, then hour by hour and day by day for subsequent meetings, yet was repeatedly represented to landlords, the Monitor, and the media as a key member of senior management, prompting him on June 26, 2025 to formally demand a correction. Ms. Liu also conceded during cross-examination that the Purchaser no longer intends to engage J2 Retail Management to manage its supply chain and logistics function, with no alternative identified.

Appropriateness of the assignment

The court held that the proposed assignments were inappropriate for several reasons. The sheer scale and complexity of the Transaction was found unprecedented, involving up to 25 major retail store leases in three provinces across Canada. The Subject Leases were not being assigned as part of a broader acquisition of assets or of a business. This is a liquidating CCAA proceeding, and the proposed assignments were not being sought in pursuit of a going concern transaction but simply to pay a secured creditor. The Purchaser is a shell company with no assets beyond the funds that Ms. Liu decides to inject, and no NI 51.01 analysis (as had been provided by Deloitte in Dundee) was presented. The remaining terms on a number of the Subject Leases, to which is added the length of possible renewal terms, were also unprecedented: if renewal term options were exercised, the Purchaser could be a tenant under certain of the leases for approximately 100 years, with the Morguard and Westcliff leases ending, if all options were exercised, between 2060 and 2091, and the Cadillac Fairview leases having current lease terms extending into 2036, with ultimate lease terms, if all rights of extension and renewal were exercised, until (in the case of Sherway Gardens in the Greater Toronto Area) June 2203—over 175 years.

The Ivanhoe Cambridge ipso facto clause issue

Although moot given the refusal of the assignment, the court addressed the IC Leases' ss. 3.05 and 3.05(A). In 2023, well before this proceeding was commenced, Ivanhoe Cambridge and HBC undertook a portfolio-wide review of all of the leases to which they were both parties—11 in total. The November 2023 agreement provided for a monetary payment by Ivanhoe to HBC of $30 million, the termination of the remaining original leases and their replacement with new leases (s. 3.05), with the new leases providing in s. 3.05(A) for a conditional reversion whereby, if HBC operated in good order for five years following the agreement, the new leases would be terminated and the parties would enter into further new leases on terms substantially the same as the original leases. Applying Chandos Construction v. Deloitte Restructuring Inc., the court held that the anti-deprivation rule and s. 34 of the CCAA are triggered only when existing rights are taken away because of an insolvency. Section 3.05(A) operated as a condition precedent granting future rights only if certain conditions were met by November 13, 2028, rather than as a condition subsequent removing existing rights. Accordingly, the provisions did not violate the anti-deprivation rule or s. 34, and the court would have declined to declare them unenforceable in any event. The court also observed that HBC already received approximately $60 million as part of the portfolio-wide 2023 Agreement.

The sealing order and the FILO Agent's motion

Applying the three-part test from Sherman Estate v. Donovan, the court granted the temporary sealing order over the confidential appendix summarizing the economic terms of certain bids, finding that disclosure while the process is incomplete could and very likely would impair both the integrity of the process and the result. Regarding the FILO Agent's motion, the court dismissed most of the relief sought, holding that cost allocation disputes between the FILO Agent and Pathlight were premature and should typically be addressed at the end of the proceeding. The court declined to grant expanded "super-monitor" powers under s. 11.5(1) of the CCAA, finding no evidence that any director had unreasonably impaired or was likely to unreasonably impair the possibility of a viable compromise or was acting inappropriately. The court also noted the FILO Agent or affiliated entities under common ownership and control have acted in several capacities in these proceedings, including pre-filing secured lender and agent, provider and financier of consignment goods, DIP Lender, inventory appraiser, and lead liquidator in the joint venture forming the Liquidation Consultant, and that the FILO Agent's affiliate Hilco earned margins on the sale of consignment goods.

Ruling and outcome

The motion of HBC was dismissed, save for the sealing order which was granted; the proposed lease assignments were not approved. The motion of the FILO Agent was dismissed, save for the order directing HBC to make an additional distribution to the FILO Agent of $4 million on account of its outstanding indebtedness. The Opposing Landlords were successful in defeating the compelled lease assignments, preserving their contractual freedom against a tenant they had never agreed to accept. The FILO Agent obtained a partial victory with the directed $4 million distribution, while its broader requests were denied.