Court clears way for sale of Brooks Brothers Canada assets to SPARC Group LLC

Court clears way for sale of Brooks Brothers Canada assets to SPARC Group LLC

Iconic suit and dress shirt clothier Brooks Brothers Canada Ltd. has cleared a hurdle to join its American retail counterpart in U.S. bankruptcy court, paving the way for its sale to a U.S. joint venture.

An Ontario Superior Court judge granted an order under the cross-border insolvencies section of the Companies’ Creditors Arrangement Act earlier this month.

The order, issued by Justice Glenn Hainey, allows Brooks Brothers Group Inc. to act as the Canadian retailer’s foreign representative.

It also recognizes the U.S. Bankruptcy Court’s Chapter 11 restructuring process as the “foreign main proceeding” and grants a stay against debtors.

The court order is a step toward completing the sale of the 202-year-old clothier’s Canadian assets — mainly inventory — to SPARC Group LLC, which purchased Brooks Brothers and its subsidiaries and affiliates for US$325 million last month.

The initial offer was a “stalking horse” bid of $305 million, which increased by another US$20 million following an auction and bidding process.

SPARC, which stands for Simon Properties Authentic Retail Concepts, is a joint venture between Authentic Brands Group and Simon Property Group.

Together, they’ve also recently scooped up American denim company Lucky Brand Jeans, as well as fast-fashion retailer Forever 21 in partnership with Brookfield Property Partners.

Yet there remain a few legal steps yet before SPARC takes over the luxury clothing brand’s Canadian assets.

A motion filed last week with the Ontario Superior Court by Brooks Brothers’ lawyers seeks, among other things, a court order approving the sale of the company’s Canadian assets to SPARC.

“The sale transaction is fair and reasonable and represents the best possible outcome for stakeholders,” the factum filed Sept. 24 said.

The factum adds that the going-concern sale of the business avoids “the social and economic costs of bankruptcy” and provides “continued income to employees and suppliers.”

“While discussions regarding Brooks Brothers Canada are ongoing as between the buyer’s licensee and the Canadian landlords, the Chapter 11 debtors are hopeful that these discussions will lead to the continued operation of some or all of the Canadian stores and continued employment for some or all of the employees,” the factum said.

Brooks Brothers, the oldest apparel company in the United States, filed for bankruptcy in July.

Founded in 1818 by Henry Sands Brooks, the fashion institution became known for its ready-to-wear suits, button-down polo shirts, classic tweed coats and diagonally striped ties.

The company has outfitted American presidents, well-to-do Wall Street financiers, and prep school students.

Yet even before the pandemic, the upscale retailer was struggling, according to the first report by professional services firm Alvarez & Marsal Canada Inc., named as the information officer for the Canadian proceedings in a supplemental court order.

The Sept. 23 report said Brooks Brothers faced operational and manufacturing challenges due to shifting retail trends in recent years.

Despite efforts to rein in costs, improve efficiencies and increase brand loyalty, the report said Brooks Brothers also began exploring alternatives, including the potential sale of its assets.

However, the COVID-19 crisis brought on more severe liquidity and operational challenges, with its foreign vendors unable to operate and ship inventory.

By mid-March, Brooks Brothers had closed all its North American stores and New York headquarters. The company also reported poor online sales.

However, while the American retailer filed for bankruptcy on July 8, Brooks Brothers Canada stayed out of the proceedings in an attempt to pursue out-of-court restructuring, a factum by lawyers for the company said.

Yet once the U.S. Bankruptcy Court approved the sale of Brooks Brothers to SPARC, both sides agreed before the sale closed that it would be beneficial for the Canadian arm of the retailer to obtain a court order recognizing and approving the sale.

– Follow @bbundale on Twitter

This report by The Canadian Press was first published Sept. 28, 2020.

Brett Bundale, The Canadian Press

Business and Industrial

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