Hudson’s Bay, the owner of Saks Fifth Avenue has denied allegations in a lawsuit that an internal restructuring amounted to a move to strip the company of its assets and impair collateral for a loan to subsidiaries of a real estate joint venture. The lawsuit by the lenders called the reorganization a ‘corporate shell game.’ They also separately sought a prejudgment to freeze the parent company’s assets.

Owned by a Hudson’s Bay joint venture, the company defaulted on $7.4 million in payments of the $846 million loan as retailers stopped paying rent after the Coronavirus pandemic forced them to close. Hudson’s Bay, formerly headquartered in Toronto and known as HBC, was reorganized by its new owners ‘to optimize their Canadian and foreign operations and assets from a tax perspective,’ according to the filing. It was converted into HBC ULC under British Columbia law, with Bermuda-based HBC Bermuda set up as the parent entity.

HBC continues to exist, owns the same assets and is bound by the same agreements that pre-date its restructuring. That includes a guarantee of rent payments to the landlords of the 34 stores, but not a guarantee on the loan, which is backstopped by the real estate.

The amount defaulted relates to debt repayment in April and May, and the borrowers were in the middle of talks with the lenders when the suit was filed.