Crunch time for Ellerines rescue

TOMORROW is D-day for Ellerines as creditors of the 45-year-old furniture chain started by brothers Sidney and Eric Ellerine in 1969 meet to decide its fate.

In the largest and most complex business rescue yet in South Africa, creditors must vote to adopt the new business rescue plan, or choose instead to plunge the company into liquidation.

Ellerines was bought for R9.9billion by African Bank in 2008. It was placed in business rescue hours before the bank imploded in August after ringing up massive losses.

Emotions are running high amid mounting talk of Ellerines negotiating a golden handshake plan to pay some executives three times their annual salary, estimated to total R50-million.

But Les Matuson, one of the business-rescue practitioners, said they had “neither recognised nor provided for payment of this in the plan, based on legal advice”.

These windfall payments for the executives were part of a “retention plan” put in place to keep “management’s focus”, according to one insider, at a time when African Bank was trying to sell Ellerines.

Once the bank itself imploded, all bets were off.

This comes as Ellerines’s 7 060 staff, who worked in the retailer’s 947 stores, face the prospect of being laid off with hardly anything.

Matuson said that if creditors voted to support the business rescue plan, at least 1 600 jobs could be saved. The sum of R199-million has

Liquidation would be worse for companies owed money by Ellerines

been set aside to pay retrenchment costs.

Under this plan, Matuson and the other practitioners can immediately conclude the sale of two of the six Ellerines brands — Beares, which will be sold to Lewis for R50-million, and Dial-a-Bed, to be sold to Coricraft for R150-million — as well as the sale of Ellerines’s African division.

About 50 bidders jostled to buy parts of the business, but there were no “viable offers” for the stores trading under the brands of Ellerines, Geen & Richards, Furniture City and Wetherlys.

If, however, this plan is vetoed, then Ellerines will have to be liquidated, which means all staff will be retrenched and get a maximum of only R28 000 each — amounting to R112-million — and then only in 18 to 24 months’ time.

Under business rescue, staff would get paid sooner, and could even get a 13th cheque.

“The business rescue plan has been published in an extremely short space of time as the process has tight timelines,” said Matuson.

Liquidation would be worse for companies owed money by Ellerines.

A KPMG analysis shows that concurrent creditors would get between zero and 13c for every R1 they are owed in the event of liquidation — compared with 20c30c for every R1 in a business rescue scenario.

Matuson and his colleagues are speaking to other retailers about taking over Ellerines stores, which would allow staff to be transferred to those stores.

The alarming extent of Ellerines’s debts became clear this week when new documents revealed it owed R1.3-billion to creditors — R591-million to the big banks, including FirstRand and Standard Bank.

A “significant number” of the stores did not trade profitably, partly because of poor sales, high fixed costs, a falling market share and the fact that consumers were swamped by debt.

In its 2013 financial year, Ellerines ran up an accumulated loss of R1.2-billion.

From October 2013 to September this year, it had a loss of about R2-billion.

As murky as prospects seem for staff, it remains equally unclear what will become of the stores.

Some of the stores will trade over Christmas, then offer discounts in January, and may, after consulting staff, close by the end of January if they have not been sold.