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$509M paid to Sears Canada shareholders could be subject of court case

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An investigation into millions of dollars in dividend payments to Sears Canada shareholders while the company was in decline could soon lead to court action.

On Nov. 19, the court-appointed monitor for the retailer’s insolvency will seek permission from Ontario Superior Court to initiate proceedings against Eddie Lampert and his U.S. hedge fund, ESL Investments, in connection to $509 million paid to Sears shareholders in 2013.

In its notice of motion, the monitor,  FTI Consulting, says it has identified “unresolved concerns” over the dividend payments. Of particular concern, it says, was the apparent limited analysis that informed the decision, which was made at a time when Sears was facing “worsening financial results,” and  ESL appeared “to have had an urgent liquidity need.”

Eddie Lampert is chair of Sears Holdings in the U.S. and ESL Investments. (Sears Holdings)

The monitor also claims there is evidence  Lampert and two then-Sears Canada directors “significantly influenced” the dividend payout decision.

The two former directors, William  Harker and William Crowley, are also named in the potential proceedings. They each had close links to  ESL and  Lampert, according to the court documents.​

Harker and Crowley’s lawyers declined to comment.

None of the allegations in the notice of motion has been proven in court.​

ESL, of which  Lampert is chair and CEO, said the 2013 dividend payments were authorized by Sears Canada’s board of directors at a time when no  ESL executives were members and the retailer was clearly solvent.

“We believe there is no legal basis to reclaim those dividends and any attempt to do so would be without merit,”  ESL spokesperson Michael  Mittelman said.​

Look into it

The investigation into dividend payouts began in January, when the monitor announced it was reviewing $611 million the company paid to Sears Canada shareholders in 2012 and 2013.

Next, Sears Canada retirees and other creditors asked Ontario Superior Court to scrutinize nearly $3 billion paid to Sears shareholders between 2005 and 2013.

That could be a great thing for the pensioners, fantastic thing. – Sears Canada pensioner Ron Husk

The retirees’ aim was to recover some of the money to top up their pension payments, which have been reduced by 20 per cent because of a shortfall in the Sears pension fund.  

“That’s why we wanted an investigation,” said Ken Eady, vice-president of the Sears Canada Retiree Group (SCRG), a volunteer organization representing retirees.

“We wanted to find out if there was money there that should have been ours.”

In March, the court appointed a litigation investigator to look into the dividend payments. 

According to court documents, both the monitor and the litigation investigator recommend proceeding with claims related to the 2013 payouts.

When Sears paid $753 million in dividends in 2010, the approval process “appears to have been robust,” the monitor says. The process included management presentations and meetings with outside lawyers to review the plan, according to court documents.

In 2013, on the other hand, “the board and management devoted significantly less time and analysis” to the process with “limited” correspondence.

FTI Consulting also noted that in 2010, Sears Canada had an operating profit of $196.3 million, but in 2013, it was operating at a loss of $187.8 million.

An undervalued transfer

Based on its findings, the monitor says it believes there’s a reasonable basis for the court to consider whether the 2013 dividend payments represent a “transfer at undervalue” under Canada’s Bankruptcy and Insolvency Act.

“Generally, transfer at undervalue would mean the company is giving something to somebody for less than what it’s worth,” said Toronto-based commercial litigation lawyer Tamara Ramsey.

“They’ve certainly concluded that there’s some evidentiary basis for an argument that the payment of the dividend … rendered the company insolvent, which in essence, is [an argument] the company couldn’t afford to pay the dividend and the shareholders or certain insiders were taking care of themselves.” 

Commercial litigation lawyer Tamara Ramsey says a ‘transfer at undervalue’ generally means a company is giving something to somebody for less than what it’s worth. (CBC)

Sears Canada didn’t file for bankruptcy protection until June 2017. It laid off 17,000 employees with no severance pay before closing its final stores in January.

But in court documents, the monitor argues that in 2013, the retailer was already on “a path to inevitable insolvency.”

The evidence listed includes the company’s “steadily declining financial performance” and its policy of “making significant distributions to shareholders without investing in the growth” of the business.

Sears Canada retiree Ron Husk, 73, had to return to work to make up for the shortfall in his pension payments. (Rhonda Thistle)

Sears Canada pensioner Ron Husk was happy to learn there may be court action involving the $509-million dividend payout.

“That could be a great thing for the pensioners, fantastic thing,” said Husk, who had to return to work as a greeter at Home Depot in Mount Pearl, N.L., to make up for the shortfall in his pension payments.

He says he’s holding out hope some of the dividend money will make its way back to Sears retirees.

“I gave 35 years of my life to Sears. I don’t want to be out working. I’m 73 years old.”

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Window repair or replacement is the responsibility of the condo corporation

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If the windows in your condo are hazy, drafty, or have rotting frames, it’s an indicator that they need repairs or outright replacement.

However, under the Condominium Act, it is the responsibility of the condo’s board to carry out such changes as a replaced window is a common element.

“Under the Condominium Act, a declaration may alter the maintenance or repair obligations of unit owners and the corporation but cannot make unit owners responsible for repairs to the common elements,” said Gerry Hyman is a former president of the Canadian Condominium Institute and contributor for the Star.

“A declaration for a high-rise condominium invariably provides that the unit boundary is the interior surface of windows. That means that the entire window — whether it is a single pane or a double pane — is a common element. Necessary repairs or replacement of a broken pane is the obligation of the corporation.”

According to Consumer Reports, selecting an installing windows replacement can be very overwhelming for homeowners. Therefore, if you aren’t covered by your condo’s corporation, it would be necessary to hire professional hands.

Wood, vinyl and composite windows need to be tested on how they can withstand various natural elements. For wind resistance, a window can be very tight when it’s warm but get quite cold too—especially when it begins to leak a lot.

Whatever the case may be, the bottom line remains that replacement windows can save you heating and cooling costs, but it’s best not to expect drastic savings.

Additionally, while getting a new window might help you save on your electric and gas bills, due to their expensive cost, it may take a long time to offset their cost.

Mid-last-year, the government withdraw a $377 million Green Ontario program that provided subsidy on windows to installers and repairers. Window companies had to install energy-efficient windows in order to qualify for the government subsidy that pays for up to $500 of a $1,000 to $1,500 window.

Due to the largely generous subsidies from the government under the Green Ontario program, a lot of window dealers were fully booked for months—even after the program had ended.

“We’re fine with the program ending, we just need more time to satisfy consumers,” said Jason Neal, the executive director of the Siding and Window Dealer Association of Canada, the industry group representing window dealers in a report.

According to Neal, the Progressive Conservatives acted hastily, making massive changes with no prior notice.

“No notification was given to us by anyone,” he said, noting he learned about the change through one of his dealers.

“It’s created a ripple effect.If they had just given us notice we would have pushed that down the line from the manufacturer right into the dealer right down to the consumer.”

Neal noted that he wasn’t particularly sad to see the Green Ontario program end, as it was “the worst rebate program in the history of the window industry.”

“It’s been horrible,” he said. “$500 a window has created such hysteria.”

However, despite the program ending about a year ago, numerous homeowners have been contacting window dealers consistently with concerns that they might not be able to afford replacement windows without the government’s subsidy.

“I understand their concern,” said window dealer Chris George. “I would suggest they reach out to their local representative of the government in their riding and let them know about their concerns.”

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7 Vancouver Real Estate Buying Tips

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The real estate market in Vancouver is turning around for good for everyone looking to purchase a home.

Previously soaring prices are now beginning to ease up, making it a perfect time for buyers—with real estate agents already getting ready for a very busy spring and summer season.

However, before splashing cash on a new property, there are some very important tips you need to know to ensure you make the most of the buyer’s market.

Here are some few expert tips that would guide you when purchasing a home in the sometimes frustration Vancouver seller’s market.

  1. Get adequate financing

It is very important that before you make the move to purchase a property, you put into careful consideration your credit score.

Normally, home buyers with lower scores use the secondary mortgage market to finance their purchase, as they’re more likely to pay a higher interest rate.However, it is advisable to get loan approval long before purchasing the house. This way, you are fully aware of how much you are able to spend—but never be tempted to borrow the maximum amount of money available.

“What’s your mortgage payment that you’re comfortable with? And take into the fact the taxes you’re going to have to pay, if it’s a strata – what the maintenance fees are, if it’s a home what type of maintenance are you going to have to pay in the future?” said Phil Moore, president of the Real Estate Board of Greater Vancouver in a report.

Always be careful of the type of loan you secure and ensure that you can comfortably afford it over a long period of time.

  1. Get a real estate agent

Buying a property without professional help is a very risky move and can be likened to choosing to represent yourself in court without a lawyer. While you might trust your negotiation skills, only realtors are permitted to present offers directly.

Therefore, it is necessary to get a professional real estate agent in the area to represent you. So, screen a few agents and select the best one who has in-depth knowledge of the markets and has a great reputation.

“They’re there to protect you. They’re there to walk you through each step of the process,” Moore said.

  1. Sign up for automated alerts

Most—if not all—realtors have access to the Vancouver real estate board’s database which is updated approximately two days before the public MLS website.

Therefore, you can request from your realtor to sign you up for automatic real-time alerts of all new listings. Doing this gives you an edge as you’re among the very first to know about new properties.

  1. Do a thorough inspection

After receiving an alert for a new listing, it is necessary to push almost immediately for an inspection from your realtor. In this current market, buyers now have time to make an inspection.

Making a quick inspection eliminates any surprises—as there could be major maintenance or repair issues that could spring up. Therefore, you can now table your offer based on the outcome of the inspection, with clauses about claiming your damage deposit back if everything isn’t as was advertised.

Additionally, if you notice that renovations were done, you need to be sure that it was permitted work and carried out appropriately. Failing to do this would ultimately lead to further cost down the line and simultaneously affect the resale value.

  1. Have a back-up plan

There’s always the possibility that everything may not go as smoothly as you’d want. From the inspection being a failureto the property not living up to your expectations—or not being able to agree on the closing date that matches with your needs.

However, a professional real estate agent will definitely help you get past all of these things. If you plan on selling the property as you buy, you can table that and make it part of the deal.

“You’ve got an option, especially in a buyer’s market: you can put in an offer subject to selling your place. So maybe you want to have a place lined up,” Moore added.

Additionally, building contingencies into your buying plan is necessary. Things such as unexpected delays in closing the deal, closing cost and moving costs that could result in added living expenses if that’s your permanent home.

  1. Don’t fall for the buyer frenzy

The Vancouver market buying frenzy that caused a serious climb in the prices a couple of years ago has ended. Thus, it is important not to get caught up in bidding wars with properties that have been deliberately under-priced—with the hope of initiating multiple offers.

“Some of the sellers have been on the market for over a year and they’re eager to sell. So what I’m saying to consumers is: you have a lot of choices, you’re in the driver’s seat, let’s go out and take a look at what’s available,” said Moore.

  1. Never be wary of multiple offers

When purchasing a property, don’t be afraid of multiple offers as you have the same opportunity as anybody else.

Typically, there are just a few offers below the asking price: a couple priced fully, and two or three above the asking price—depending on how close the fair market value is from the asking price.

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Do you know what kind of condo you’re buying?

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(NC) Condominiums can come in all shapes and sizes. But it’s important to know that not all condos are created equal when it comes to warranty coverage.

Whether you’re buying a condominium townhouse, loft-style two-bedroom or a high-rise studio, they are all classified as condominiums if you own your unit while at the same time share access (and the associated fees) for facilities ranging from pools and parking garages to elevators and driveways, otherwise known as common elements.

The most common types of condos are standard condominiums and common elements condominiums. The determination of how a condominium project is designated happens during the planning stage when the builder proposes the project and the municipality approves it.

When you’re in the market to buy, you need to know how your chosen condo is classified because it affects the warranty coverage under the Ontario New Home Warranties Plan Act. Standard condominiums have warranty coverage for units and common elements, but common elements condominiums only have unit coverage.

How could this affect you as the owner? If your condo complex has underground parking and, for example, there are problems with leaks or a faulty door, the condo designation will determine whether there’s warranty coverage.

If your unit is a standard condominium development, then the common elements warranty may cover the repairs. If it’s a common element condominium development, then repairs might have to be covered by the condo corporation’s insurance, which could impact your condo fees or require a special assessment on all the owners.

To avoid surprises, you should have a real estate lawyer review the Declaration and Description attached to your purchase agreement to be sure that you know the designation and boundaries of the unit you’re looking to purchase. Find more information on the types of condos and their coverage at tarion.com.

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