Creditors go to court for details of Edgars implosion

Ten former Edgars suppliers are applying to the high court in Pretoria for permission to litigate against Edcon, which is in business rescue, to improve their low payout and get more clarity about why the clothing retailer almost collapsed.

Edcon, the former owner of Jet, Edgars and CNA, went into business rescue in 2020 after several attempts to restructure the company, which never recovered after Bain Capital borrowed R25bn in foreign debt to delist it in 2007.

The business rescue process is not yet complete, even after clothing retailer Edgars was sold to private clothing company Retailability and discount chain Jet was sold to TFG, the owner of Foschini, in 2020.

When a company is in business rescue, creditors need

permission from either the business rescue practitioners or a court to enact further legal action against the company.

Ten suppliers led by clothing manufacturer Kingsgate and its director, Yusuf Vahed, want to be given permission by the high court to start legal action and, if successful, ask the court to order business rescue practitioners Lance Schapiro and Piers Marsden from Matuson & Associates to provide Edgars’ financial accounts dating back to 2018.

They want to know how long Edgars was trading in financial distress and if it was in breach of the Companies Act by trading in an insolvent position.

Vahed, whose company had supplied Edgars for 50 years, said clothing and product suppliers had not been provided with all the financial statements they requested.

“The entire business rescue proceedings have been epitomised by a lack of financial transparency ... shrouded in secret, and critically there has been an abject refusal to ‘come clean’ regarding the entire financial picture of the Edcon group.”

The court action is a lastditch attempt to improve the payout to creditors such as Vahed. The suppliers involved in the court action are owed a collective R109m but will get repaid just under R7m, which Vahed called “a travesty of justice”. Secured creditors, such as landlords and banks, will get 19c for every rand owed to them and the clothing and product suppliers only 6c, which was approved when creditors approved the business rescue plan in 2020.

Schapiro said the rescue practitioners will oppose the court application.

Though Edgars had several restructurings between 2015 and 2019, the suppliers say in court papers that assurances by former Edcon CEO Grant Pattison made them feel certain Edgars was in a stable position and they were caught by surprise when it was put into business rescue. In 2019, Edcon’s bank and rental debt was restructured, with lenders and property companies taking an ownership stake in a debt-forequity swap. Matuson & Associates was also involved in the landlords and lenders debt equity swap in 2019, and the suppliers accuse it in court papers of a lack of independence.

Schapiro denied any allegations of a conflict of interest.

“We are confident that we have adhered to what was required from us. We fulfilled our obligations in terms of the Companies Act. We are confident that we have complied and continue to comply with the business rescue plan which came into effect on June 22 2020, when we received the support of more than 80% of the creditors,” he said.