Rescuers in race against time to save Ellerines

31 August 2014 - 02:31 By Ann Crotty
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COSTLY ASSET: After investing R9.1-billion in buying Ellerines in 2008, Abil wants to dispose of the struggling furniture retailer where sales have dropped 13%
COSTLY ASSET: After investing R9.1-billion in buying Ellerines in 2008, Abil wants to dispose of the struggling furniture retailer where sales have dropped 13%
Image: Picture: RUSSELL ROBERTS

"Most companies die within the first few weeks of being rescued," was the discouraging view of a delegate at last week's symposium on company law hosted by the Department of Trade and Industry. This will have sent shivers through any Ellerines creditor there.

Three weeks after African Bank Investments Limited (Abil) said it would no longer fund Ellerines's working capital requirements, and two weeks after initiating business rescue proceedings, the once powerful furniture retailer faces an uncertain future.

"This is crunch week for Ellerines," said retail analyst Syd Vianello, referring to end-August payment demands. He urges speedy and dramatic action.

Back at the symposium, Trade and Industry Minister Rob Davies was more upbeat, describing the business-rescue provisions of the Companies Act as "ground-breaking". Since 2011 when the act was implemented, 1120 business rescue notices have been filed.

Davies contends that business rescue is an important tool that, unlike the previous judicial management process, can save companies that do have capacity. The global success rate for business rescue is 5% to 12%.

Ellerines is by far the highest-profile business rescue case to date. While the company directors are making encouraging noises the mood among creditors and analysts is grim. At stake are 6623 jobs, leases on 1025 stores and payments to suppliers of about R400-million worth of furniture sold monthly.

Vianello describes the difficulty created by the tie-up with Abil: "Ellerines is not able to sell furniture because it can't provide finance. So we have the perfect house of cards collapsing in front of us - no sales because of no credit, no cash flow, no income but lots of costs. The quicker they sell it off piecemeal, the better for staff, landlords and suppliers."

Ellerines would not confirm reports that it had difficulty paying last month's bills. The reports were sparked by the statement issued on August6 in which Abil indicated that Ellerines continued to trade at a loss and needed working capital, which Abil would no longer provide.

Last week, the business-rescue practitioners said they had met staff and creditors. "All options are being investigated to secure a lifeline. Every effort is being made to ensure that job losses are kept to a minimum and to enable the company to continue on a solvent basis," said practitioner Les Matuson.

Ellerines has reminded customers that they must still pay their accounts. However, payment of Ellerines accounts will benefit only Abil, which financed the credit sales.

One business-rescue practitioner said employees were best placed in the short term as they were crucial to the business-rescue process. "Any employees who work with the practitioner through the rescue process will receive payment before any other creditor," said the practitioner. The act gives staff more of a role than they had in liquidation proceedings. But their generally poor organisational levels limit their ability to take advantage of this.

Small-scale furniture manufacturers will suffer the most. "Many small manufacturers who supplied Ellerines are in financial difficulty because the market has been weak for so long," Vianello said. In the past 10 years the industry was decimated because of sluggish consumer demand and rising imports.

Landlords holding leases for the 1025 stores will be forced to accept new and less attractive terms for whatever stores survive. Vianello fears the business-rescue process may just be delaying the inevitable. Dial-a-Bed and Geen & Richards are thought to have the most secure future; Furniture City and Beares are vulnerable; Wetherlys might be bailed out by a brave entrepreneur; and other furniture retailers may be interested in the Ellerines brand.

But it is a buyer's market, and the business-rescue practitioners will struggle to get this applicant into the 5% to 12% of successes.

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