Venture capitalist firm Vestacor will cede management of department chain Stuttafords, ending a more than ten-year-long tenure with the struggling retailer.
Approximately 85% of creditors, who are owed R836 million by Stuttafords, voted in favour of an amended business rescue plan on Wednesday that paves the way for new management to take over.
Creditors approved proposals by SA’s furniture family Ellerine Brothers to rescue the 159-year-old retailer, which will see it feeding R12 million into Stuttafords for a 76% stake. Part of the proposal is for Stuttafords CEO Robert Amoils (also part of Vestacor) to step down.
Ellerine Brothers own a 26.4% stake in Stuttafords Stores, Stuttafords’ parent company.
Under the Ellerine Brothers-backed rescue plan, Stuttafords will have an unnamed retail expert run the show until it finds a new buyer. Although the retail expert and new buyer are still unknown, Ellerine Brothers has noted that it has been in contact with “more than one potential buyer with substantial assets to put it behind the acquisition”.
Vestacor has a 20.1% stake in Stuttaford Stores. Stuttafords was bought from commercial insolvency in 2006 from the main shareholder Charles Fox by a consortium led by the Ellerine Brothers, Vestacor and other shareholders.
Stuttafords placed itself into voluntary business rescue on October 28 2016, entering into negotiations with its creditors to buy it time on its financial obligations. Since meetings began on February 20 to examine the business rescue plan, tensions have surfaced between management, creditors and shareholders – delaying the process to save Stuttafords from the worst case scenario of liquidation.
A standoff also emerged between two prominent retail families Ellerine and Rubenstein, with the former claiming that it has been excluded from business rescue proceedings. Another source of tension was a contentious rescue plan itself, which showed that creditors (largely fashion companies that have supplied Stuttafords over many years) stand to lose plenty.
Under the amended plan (for the third time), which was published on Tuesday, the payout to creditors was raised to 4 cents in the rand. An additional 21 cents in the rand over the next 21 months would be paid to creditors and a further undisclosed final distribution.
Creditors would qualify for the additional 21 cents if they continue supplying Stuttafords with merchandise on consignment, or on 120 days credit terms, as it isn’t in a position to purchase stock for the 2017 winter season. Creditors will still be taking an estimated 75% write-off on their debt, which is not secured against Stuttafords’ assets.
Under the initial rescue plan, it was proposed that creditors would be paid 5 cents in the rand and an additional 18 cents in the rand over the next 18 months, which was later reduced to 2 cents and an additional 21 cents. This plan was rejected by nearly 30% of creditors on Monday, falling well short of the requisite 75% needed for approval.
Lawyer at Hogan Lovells Gareth Cremen, who represents some of the creditors along with his colleague Alex Eliott, says the latest plan was drafted in a way that would enable creditors to continue supplying Stuttafords with merchandise.
He says the approved plan means that Stuttafords now has a balance sheet of R200 million-worth of stock and minimal debt, “thus making it easier to sell or offload [the retailer]”.
“The fact that a business rescue has been adopted at a meeting of creditors does not mean that the company is out of the problem yet. A lot needs to be done to turn this entity around and in the right direction.”
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). It has approximately 763 employees. Various creditors of Namibia and Botswana have still not been paid by Stuttafords.
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