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Severed employees of bankrupt Canadian-based retailer Dylex Ltd. are suing Hardof Wolf and California-based liquidator Great American Group for wages, benefits and bonuses in two class actions totaling C$18.4 million ($11.6 million). The more than 4,000 employees, represented by Toronto law firm Koskie Minsky, are also seeking punitive damages of C$5,000 each ($3,144). The employees include former workers from the retailer’s BiWay discount unit and employees of Dylex’s head office. Koskie Minsky said in a statement the employees are suing Wolf for wages, termination pay, severance pay, vacation pay, health benefits and expense reimbursements that were not paid when Dylex filed for bankruptcy Aug. 3, owing creditors about C$80 million ($50 million). Koskie Minsky lawyer Andrew Hatnay said March 12 that Canadian law allows employees to sue individual directors of a company that owes them money and that Wolf is the sole remaining director of Dylex. “If a company stiffs employees, employees can ‘pierce the corporate veil’ and go after directors personally,” Hatnay said. The employees are also suing Great American Group and two Canadian directors of Dylex who resigned last summer for breach of contract over bonuses promised to managers and assistant managers of BiWay following liquidation sales. Dylex’s new owner, Hardof Wolf Group Inc., hired Great American Group to liquidate BiWay’s inventory in anticipation of the 259 stores being converted to Dollar Zone outlets. Toronto-based Dylex, which once had more than 700 stores under the brand names Thrifty’s, Tip Top Tailors, Braemar, Fairweather and BiWay, was purchased in May for C$68 million ($43 million) by Wolf through Hardof Wolf Group, a shell company based in Nova Scotia. Hardof Wolf Group’s parent is insolvent dollar-store chain McCrory Corp. of York, Pa. McCrory’s majority owner is former buyout maven Meshulam Riklis. Hardof Wolf Group closed the BiWay outlets Aug. 7 and Aug. 8 after Dylex filed for bankruptcy protection in Canada under the Companies’ Creditors Arrangement Act. McCrory filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court in Wilmington, Del., on Sept. 10. Justice James Spence of the Ontario Superior Court of Justice determined in February that trustee Richter & Partners had established a case of fraud against Hardof Wolf Group. Spence said Hardof Wolf Group conducted the Dylex deal “so as to use corporate funds of Dylex to put itself in a position to obtain personal benefits from Dylex to the detriment of the proper interests of creditors.” Therefore, Spence said, solicitor-client privilege does not cover Hardof Wolf Group’s communications with its former lawyers at Toronto firm Stikeman Elliot. Hardof Wolf Group is seeking leave to appeal that ruling. An investigation by Richter has revealed that Hardof Wolf Group funnelled C$11.6 million ($7.3 million) of Dylex money slated for dollar-store inventory directly to McCrory to pay down debt. In addition, it forwarded C$853,000 ($536,281) to McCrory for “consulting fees” related to the takeover and C$868,000 ($545,712) to Riklis’ personal account. Dylex sold its Tip Top, San Remo Knitting Mills and Western Apparel divisions to Grafton-Fraser Inc. for C$32.8 million ($20.6 million). In December, 2000, it sold Thrifty’s, Braemar and National Logistics Services to American Eagle Outfitters Inc. for C$115 million ($72.3 million) in cash. On Sept. 17, a bankruptcy court approved the sale of 100 BiWay leases to Dollarama Inc. and another, unnamed firm. The 71-store Fairweather division was sold in November. The trustee in the case has said creditors will recover between C15 cents (.09 cents) and C25 cents (.16 cents) on the dollar as an interim dividend. Copyright (c)2002 TDD, LLC. All rights reserved.

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