West Pack narrowly avoids asset seizure

Retailer West Pack Lifestyle has consented to bond holders perfecting their notarial bonds jointly, retaining asset possession for operations, with the company appointed as the agent for the secured bond holders following court approval.

Fluxmans Attorneys director Craig Blumenthal told Business Day that between late May and early June, bond holders sought the retailer’s permission to jointly perfect their notarial bonds with other general bond holders.

He said West Pack consented on the condition that it retained possession of the company’s assets to fund its business rescue and ongoing operations.

“This condition was accepted by all of the bond holders. With our client’s consent and assistance, the bond holders approached the court on an unopposed basis to perfect the general notarial bonds. The relevant agreements were entered into and our clients were appointed as agents acting on behalf of the secured bond holders,” he said.

This comes as West Pack business rescue practitioners scramble to keep the retailer afloat amid a R118.3m debt owed to Absa, Access Bank and Preference Capital.

The company plunged into “financial distress” and sought to enter voluntary business rescue earlier this year, a decision deemed a breach of its many credit agreements with the trio.

The company’s mounting debt is a result of a confluence of factors including an aggressive growth strategy, economic pressure and operational challenges.

West Pack’s financial troubles began as the company embarked on an accelerated growth path. While expansion can often drive profitability, in this case, it put a strain on West Pack’s cash flow. The company’s rapid growth was not sufficiently matched by its liquidity, leading to a severe financial imbalance.

Compounding these issues were the broader economic conditions in SA. The country’s depressed economic environment, worsened by load-shedding, has adversely affected consumers’ buying habits, leading to reduced turnover for West Pack.

According to the application brought by the creditors, Absa has provided financial services to West Pack since 2008, secured by three general notarial bonds.

In April 2022, Absa extended a mortgage-backed business loan of R40.4m and an overdraft facility of more than R38m followed in November 2023, with both requiring the bonds for security.

The court heard that West Pack’s entry into business rescue and failure to make payments triggered Absa’s rights under the bonds, allowing the bank to claim the full outstanding amount.

West Pack secured a R50m overdraft facility from Access Bank in August 2023, backed by a general notarial bond over its movable assets. The facility’s terms allowed Access Bank to terminate the agreement on notice, with repayment required on demand and all related costs, including legal fees, to be borne by West Pack.

The bond, registered in September 2023, covered R50m in debt and an additional R10m for costs. With West Pack now in business rescue, Access Bank’s loan fell due.

In June last year, Preference Capital and West Pack entered into a master rental agreement for equipment, with West Pack agreeing to pay R232,709.08 monthly for 36 months.

The court heard that the agreement included a breach clause that stipulated if West Pack entered business rescue Preference could collect the full amount owed.

A general notarial bond registered on July 5 2023 over West Pack movable assets secures the debt, but is limited to assets within the Pretoria deeds registry area, the court papers state.

The company owes Preference Capital R6.05m.

The court said the general notarial bonds served as security for the obligations, and the enforcement of these bonds was critical for the creditors to recover their funds.

“The respondent is ordered to pay the costs of this application on an attorney and own client scale,” the order states.

Note: August 16 2024
This article has been updated to reflect recent developments.

goban@businesslive.co.za