What happened

Shares of Sears Holding Corp (SHLDQ) were slipping again after reports emerged that Sears Canada was heading toward insolvency and would soon head to court to fend off creditors.

As of 11:16 a.m. EDT, the stock was down 7.1%.

The exterior of a Sears store.

Image source: Sears Holdings.

So what

Sears only owns about a 10% stake in Sears Canada after it deconsolidated the chain in 2014, but the move nonetheless weighs on Sears Holdings' value and reflects poorly on the brand and Sears Holdings' own chances of surviving.

Bloomberg first reported the news and said the court filing would likely lead to liquidation of the company. Sears Canada's stores are mainly located in lower-income shopping centers, putting a damper on its real estate value, meaning any liquidation is unlikely to be lucrative.

Now what

The news comes as little surprise as Sears' venture north of the border suffered from many of the same problems as its American business did including a lack of investment in stores, an inability to adapt to shifting consumer habits, and increasing competition from the e-commerce channel.

The development will hit Sears CEO Eddie Lampert the hardest as his hedge fund, ESL Investments, owns a majority stake in Sears Canada. The original deconsolidation deal was done to inject cash into Sears Holdings, but the company is now running out of assets to spin off and the core business appears to be in an irreversible decline. Many expect Sears Holdings to declare bankruptcy either this year or next.