New standoff delays Stuttafords’ rescue plan

A fresh standoff has ensued between Stuttafords and SA’s elite furniture family Ellerine Brothers, which could jeopardise the fashion retailer’s crucial business rescue process.

Since Stuttafords placed itself into voluntary business rescue on October 28, management, shareholders and creditors have been jostling over a contentious rescue plan to save the 159-year-old retailer from liquidation.

In March, approximately 85% of creditors voted in favour of an amended rescue plan, which will see Ellerines feed R12 million into Stuttafords for a 76% stake. It currently owns a 26.4% stake in Stuttafords Stores, Stuttafords’ parent company.

Under the Ellerines-backed rescue plan, venture capitalist firm Vestacor would cede management of Stuttafords, paving the way for an unnamed retail expert to run the show.

Moneyweb has seen heated letter exchanges between attorneys representing rescue practitioners and Ellerines, which said it wasn’t obligated to inject money until a number of key concerns were addressed. This effectively delays the implementation of the approved rescue plan.

Fluxmans Attorneys’ Colin Strime, who represents rescue practitioners Neil Miller and John Evans, sent a letter on April 10 to Jane Andropoulos, a Bowman Gilfillan attorney representing Ellerines, on whether it still planned to inject R12 million.

Andropoulos responded that Stuttafords had not met conditions of the plan including the retailer agreeing with its landlords for continued tenancy and the reduction of rent and Nedbank (Stuttafords’ banker) or other financial institutions providing the retailer with a new overdraft facility.

Ellerines said it was also frustrated by its attempts to access Stuttafords’ financial records in order to determine whether it’s capable of rescue and engage with creditors on whether they would continue to supply the retailer. Based on these concerns, Ellerines believes that Stuttafords doesn’t have sufficient agreements with creditors that would enable it to continue on a solvent basis.

Creditors – as contained in the rescue plan – are owed R836 million including Nedbank (R120 million), Levi Strauss (R2.2m), L’Oréal SA (R13.5m), Tommy Hilfiger (R14.6m), Polo (R10.9m), Puma (R2.1m), Adidas (R1.34m), Estée Lauder (R53.8m) and many others.

Under the approved rescue plan, creditors will be paid 4 cents in the rand, an additional 21 cents in the rand over the next 21 months and a further undisclosed final distribution. This means that creditors will be taking an estimated 75% write-off on their debt.

The retailer has nine department stores and 16 mono-brand stores (brands with their stand-alone stores) and three stores outside SA (two in Botswana and one in Namibia). Various creditors of Namibia and Botswana have not been paid by Stuttafords.

Rescue practitioners respond

The rescue practitioners said they were “shocked and astounded” by Ellerines’ latest assertions and accused it of trying to “escape” from its promises. Since creditors voted in favour on March 8 on a rescue plan amended by Ellerine to include its cash injection, Strime said it was always privy to Stuttafords’ financial information and that it had an opportunity to meet with some creditors. He added that a number of agreements have already been concluded with suppliers and “huge strides of progress” have been made with landlords.

“If your clients [Ellerines] persist with their attitude again, we reiterate that this will most likely lead to the liquidation of Stuttafords,” he said in the letter dated April 19 to Andropoulos.

He further claimed that Ellerines refused to meet with Nedbank to arrange new overdraft facilities and withdrew from a crucial equity process after the rescue plan was approved, in which bidders were invited to subscribe for some or all of the equity in the company – signs that it was no longer interested in rescuing Stuttafords.

An urgent meeting with creditors will be held on Wednesday to discuss prospects of the business rescue.

Brought to you by Moneyweb