Sears pensioners try to recoup missing money by going after billions paid to shareholders

Sears Canada pensioners are heading to court to try to recoup close to $300 million they say is missing from their pension fund following the retailer's demise.

Representatives for Sears pensioners will ask Ontario Superior Court on Thursday to appoint a trustee to scrutinize nearly $3 billion paid in dividends to Sears shareholders — the biggest recipient of which was Eddie Lampert, CEO of U.S. hedge fund ESL Investments.

The pensioners' aim is to recover some of the dividend money, not just to help top-up their reduced pensions, but also to provide funds for other creditors owed money by Sears.

Lampert says there's nothing suspect about the dividend payments, but many ex-Sears employees disagree.

"There is good reason to believe that was inappropriate," says pensioner representative and Sears retiree Ken Eady.

Trustee request 'not surprising'

A court document filed by the pensioners' legal counsel claims the dividend payments — totalling $2.934 billion — deserve close examination by a litigation trustee.

The money came from the sale of valuable Sears Canada assets such as prime real estate. The dividends were paid out between 2005 and 2013, during a time when the retailer's sales and profits declined and the company's pension plan started to show a shortfall.

"Despite the company's continued financial deterioration, Sears Canada's board of directors approved the payment of dividends to its shareholders," states the court document.

It also takes aim at Lampert, stating that in 2005, Sears Canada came under the control of ESL Investments run by the U.S. businessman, who greatly benefited financially from the dividends.

"Through ESL, Lampert had direct and indirect control of shareholdings of Sears Canada at the material times, and was the main beneficiary of dividend payments," said the document

Eady says it was inevitable that pensioners would go after the dividend payments.

"It's not surprising that this would happen, given in what universe is it correct for a company to sell its assets, pay the dividends and leave the creditors without anything?" he said.

Pension problems

Eady says, according to Sears' actuaries, the pension plan is underfunded by approximately $270 million. That means about 16,000 ex-Sears employees will face an estimated 19 per cent reduction to their pensions.

The looming shortfall has left many Sears retirees angry and distraught about their retirement prospects.

"It's going to hurt. I might have to get a part-time job to off-set what I'm not getting," said 72-year-old Attilio Malatesta. He spent more than half of his 44-year career with Sears working in sales in Kelowna, B.C.

Malatesta says he's pleased about the plan to go after the dividend payments.

"It's a good thing," he said. "I think we've got a fair chance."

Sears Canada didn't respond to a CBC News request for comment.

But in a blog posted on the weekend, Lampert defended the dividend payments, stating that a company needs to provide adequate returns to shareholders to stay viable.

He said the payouts didn't hurt the retailer because it continued to invest in the company at consistent levels.

He also noted that in 2012 and 2013, Sears made its required pension contributions, even though $611 million was paid out in dividends. However, by that point, the plan was already showing a deficit which was never recouped.

Lampert also said that Sears' shareholders have collectively lost more than $1 billion since 2012, even when taking into account the dividend payments.

As for Sears Canada's demise, he said it was primarily the result of a costly, but unsuccessful, restructuring strategy launched in 2016.

"I raised concerns about this strategy with management but the company decided to proceed," he said.

Lampert is also CEO of Sears Holdings Corp. (SHC) in the U.S., which operates separately from Sears Canada.

He essentially became Sears' largest shareholder through ESL Investments and his holdings in SHC which previously held a large stake in Sears Canada.

SHC also defended the dividend payments in a statement.

"Sears Holdings received dividends that were duly authorized by Sears Canada's board of directors during a time when Sears Canada was clearly solvent, with minimal debt," said spokesperson Chris Brathwaite in a statement.

"We believe any attempt to reclaim those dividends would be unfounded,"

Lampert also said the Sears Canada's pension plan's shortfall has been overestimated and suggests there won't even be a shortfall when the fund is paid out.

Retiree Eady disagrees, but says he wishes that Lampert was right.