Edcon business rescue on track, even as 17,300 job cuts start
A plan to sell Jet and Edgars together did not garner sufficient interest and if one brand is sold, the other’s stores will be closed
Embattled retailer Edcon, which has issued retrenchment notices to its almost 17,300 employees, said on Wednesday that its business rescue process is going as planned.
The clothing retailer filed for business rescue in April after it was unable to pay suppliers following weak sales from January, which were worsened by the Covid-19 lockdown.
Business rescue is a legal position that protects a company from claims by creditors while business rescue practitioners take control of the company and work out the best way to salvage the business.
The company owes about R6.7bn to creditors, with R3.1bn owed to unsecured creditors who will get nothing if the company is liquidated, according to the business rescue plan.
Edcon has received non-binding offers for all or some parts of its subsidiaries, Edgars and Jet. The interested parties are conducting due diligence with binding offers required by June 30, as detailed in the business rescue plan released on June 8. In the document, the practitioners Lance Schapiro and Piers Marsden revealed that all staff would receive retrenchment letters in June. This is because Edcon does not yet know which parts of the business it will manage to sell and which will close.
The practitioners said their plan to sell Jet and Edgars together had not garnered sufficient interest. However, it is possible that only one brand will be sold; if this happens, the other brand’s stores will all be shut by the end of August.
A section 189 retrenchment process takes a legally required 60 days.
“As at [Wednesday evening], no binding offers have been received and therefore we cannot predict which parts of Edcon will be successfully sold. Therefore it is prudent to start consultations with all employees, in terms of section 189,” Schapiro said.
However, should a sale go ahead, “for those parts of the business, affected employees would be transferred to the new owners”.
The practitioners still hope to sell at least one of the business’s brands and save a “significant amount” of jobs.
Schapiro said the sale process is on track. “We are currently engaging in detailed discussions, with the next steps being for the parties to submit their final binding offers after they have completed their necessary due diligence. Our timelines still stand and nothing has changed.”
Edcon has been in trouble since Bain Capital delisted it in 2007 under the weight of foreign debt, which became more expensive as the rand weakened.
It received a R2.7bn bailout from landlords, banks and the Unemployment Insurance Fund through the Public Investment Corporation in December 2018.
It was on track to meet its bailout goals but started to falter in January under weak sales before Covid-19 hit SA, according to its business rescue plan.
Update: June 17 2020
This story was updated to include comment from business rescue practitioner Lance Schapiro.