Everything Must Go: Behind the Scenes at the Robinsons Liquidation
Date August 18, 2021
Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.
Winding up a company invariably causes anguish, frustration and confusion among its creditors, despite it being in the process that is not unheard of. Case in point: department store Robinsons, owned by Robinson & Co, which is in the process of being liquidated. Others include Hyflux, Manekineko karaoke owner Koshidaka Singapore and Naiise, which have recently taken the liquidation route.
Cameron Duncan, KordaMentha partner and the liquidator for Robinson, takes us behind the scenes of a liquidation process, using the well-known and much-loved department store as an example. With shrewd strategy and canny negotiations, the liquidation of Robinsons has resulted in outcomes that were much better than expected for the beleaguered retailer. The duties of the liquidator are to secure and realise the assets of the company in liquidation, adjudicate the claims of its creditors, and then distribute the assets to those creditors with valid claims, says Mr Duncan.
The liquidator also has to review the company's affairs to report back to creditors as to what led to the company's failure, as well as whether there are any potential legal actions to take against any parties to recover monies or any offences that have been committed by the directors.
Liquidators become personally liable once they are appointed, so there is an emphasis to protect the downside and manage risk. This is also for the benefit of creditors as it limits liabilities, Mr Duncan notes from his 25 years of experience as a liquidator.
He has run other liquidations including Parakou Shipping where a legal action was successfully taken out against former directors for conspiracy to defraud creditors. He is also currently involved in the liquidation of Ocap Management, which, being embroiled in the Wirecard scandal, has liabilities of over S$200 million.
A company's assets could take the form of tangible assets such as cash, property, and plant and equipment, as well as intangible assets such as intellectual property including trade names and patents. The strategy adopted by the liquidator and the process to realise the assets depend on the types of assets the company owns.
"If you have a company that has a lot of relatively lower-value assets in the form of inventory - for example, Robinsons, you need to have a well thought-out strategy, as to how to most effectively realise the assets and to maximise for creditors," Mr Duncan tells The Business Times (BT).
For plant and equipment or real estate property, external agents or specialists might be tapped to help with the sale.
"With Robinsons, given we had two stores which both had Robinsons' owned stock, we had a very detailed strategy on how to best realise individual stock items," he says. "This strategy is quite different from, say, the strategy you would employ if you were the liquidator of a power station, where you may be selling a single asset that is of a very high value."
Retail stock is a very specialised asset, and case studies and KordaMentha's experience in Singapore and other jurisdictions have shown that such stock is best realised in the store.
"Once you take the stock out of the store, you're looking at very low cents on the dollar return. Whereas if you keep the stock in the store, you're very likely to achieve a better return, which is generally higher than cost value."
Negotiating with landlords, suppliers, customers
"A key issue in a retail close-down is you need to look at strategies to sell the stock to zero," says Mr Duncan. "Ideally, you don't want to be left with significant stock that you then have to move out of the stores once you're finished with your main sale. Moving stock is costly, and experience suggests that once the stock is out of the store, the stock will have negative value."
Discounting with a view to selling stock to zero is a specialised field. For that reason, KordaMentha chose to partner with Gordon Brothers, a specialist with over 100 years of experience in asset disposition. "And it was very significant returns that we were able to achieve as a result of working with Gordon Brothers, so those returns on a net basis were far higher than what (Robinsons itself) had estimated."
Gordon Brothers' competitive proposal included a minimum guaranteed stock value. This enabled Robinsons to negotiate with landlords to keep its stores in The Heeren and Raffles City Shopping Centre open with certainty. By the time the two stores closed their doors for good in December last year and January respectively, Robinsons managed to generate sales proceeds that were 21 per cent over the cost of the stock.
This far exceeded the forecast of only 10 per cent of the cost - that is, losing 90 per cent of the stock value - had the merchandise been sold to a bulk wholesaler; or probably recovering only half the stock value based on their experience on similar matters.
KordaMentha managed to get the landlords to allow Robinsons to hold closing-down sales at the stores, even though the landlords were owed significant sums in outstanding rent and could have locked Robinsons out under the leases. BT reported last November that some of the largest amounts that Robinsons owed were to its landlords. The largest amount owed was about 5$7.2 million as at end-October to Swee Cheng Holdings, the landlord of The Heeren outlet. The next-largest amounts, of about 5$4.2 million each, were owed to Lendlease Retail Investment 3 and an entity linked to RCS Trust.
Lend lease is the landlord of shopping mall Jem, where Robinsons closed an outlet in August 2020. RCS Trust owns Raffles City.
These figures were based on Robinsons' records then. However, the company's records did not include the contr2ctuab amounts landlords were entitled to claim if the full terms of the lease were not met, and were therefore less than the amounts the landlords actually claimed for.
But Mr Duncan cannot disclose individual creditor claims.
Generally for landlords, unpaid rent and contractual claims incurred under the lease are unsecured claims. This means their claims to payment are lowest down the list. However, landlords can use tenant deposits to set off arrears. When a liquidator is appointed, and the liquidator believes there is a commercial basis to continue to operate out of leased premises, the liabilities incurred after the liquidation date become a priority claim in liquidation. This means they get paid in priority out of the proceeds of the assets, along with other costs associated with the liquidation.
Robinsons staff agreed to help with closing-down sales as well, despite the fact that they would soon be unemployed.
However, KordaMentha had to strike a balance in stock inventories: making sure not to hold too much, yet putting out enough to attract shoppers.
Although a large number of consignment suppliers sought to remove their stocks from the stores upon news of liquidation, KordaMentha managed to convince most of those that provided significant stock value to not only keep their goods in the stores, but also to resupply the stores during the closing-down sales.
"We were able to maintain good margins throughout the sales process, as we slowly sold down to zero, based on our discounting policy," says Mr Duncan. "We sold everything, and we also sold most of the fixtures and fittings. We had customers buying mannequins, tables and chairs."
KordaMentha also ran a marketing campaign and engaged in negotiations to sell Robinsons' intellectual property assets, while simultaneously holding the closing-down sales. Consequently, it managed to sell the "Robinsons" brand name for an undisclosed amount to wholesale supplier Canningvale Australia, which has since launched the Robinsons Department Stores Online and rehired some of the old staff.
Among the competing claims facing the business, employees and the taxman were some of those that got first bite of the proceeds from realisation of assets. For customers of prepaid goods (such as mattresses) that had yet to be delivered when Robinsons went into liquidation, their claims would generally have been treated as all other unsecured claims (see other story). However, the liquidators worked with the mattress suppliers and the customers and came to a commercial arrangement after a few days, says Mr Duncan. He is unable to disclose the details due to confidentiality reasons.
"I think we provided good outcome for the customers," he shares. "It took a few days to reach an agreement, but I think in the end it worked out quite well for the parties." Several mattress suppliers honoured the prepaid orders - despite not having been paid by Robinsons and even though it was unlikely they would recover the dues in full.
For retail business like Robinsons, gift vouchers too are unsecured claims, and there is no obligation to honour the vouchers ahead of other creditors. But recognising that customer goodwill and loyalty were significant contributors Robinsons' total sales, and as a way to maximise returns to creditors overall, KordaMentha permitted vouchers with the condition that the total amount spent was at least double the voucher value.
On whether any legal actions could be expected out of Robinsons' liquidation, Mr Duncan says he is not in a position to comment.
Common misconceptions of creditors regarding their rights and claims
After Robinsons announced that it was going to shutter, many consignors were unsure whether they could withdraw their goods from the stores. Customers who had fully or partially prepaid for their purchases, including mattresses worth thousands of dollars, were anxious about whether Robinsons would honour the orders or refund payments. It was evident that the consignors and consumers did not quite understand their rights. Consignors to the recently closed Naiise were also up in arms over being owed payments, with some vowing that they would stop making consignments and sell direct on line instead, and others rueing that they should have pulled out when arrears started to pile up.
We explain some commonly misunderstood conditions and situations.
For customers who had prepaid for their purchases but not received the goods, if there are no contractual arrangements or the contractual arrangements are very loose, their claims are unsecured, and will be treated like all other unsecured claims.
Consignors are in a similar position as trade creditors. Goods consigned might have been used or sold during the course of business before the business went belly-up. Payment obligations to consignors or trade creditors are bound by the terms of the specific contract, notes lawyer Felicia Tan of TSMP Law who specialises in litigation and dispute resolution.
A consignor ought to be able to retrieve the goods it consigned if payment is not made after it has been sold, subject to the terms of the consignment agreement. If the agreement is silent on this issue, this may be resolved by commercial negotiations or court order.
"If the consignment agreement (in the case of consignors) or sale-and-purchase agreement (in the case of trade creditors) did not provide for any upfront deposit and the creditor is unable to retrieve any of the goods, such creditors would be in a very rough position as they would rank pari passu (equally) with other unsecured creditors who might recover just a few cents per dollar of debt. Security deposits, shorter payment terms and regular monitoring of payments are certain self-help mechanisms to be explored," Ms Tan says.
Proof of debt As unsecured creditors recover very little in most liquidations, some might wonder if it is worth the trouble to file proof of debt and attend meetings. It is, however, recommended that creditors file their proof of debt to participate in an any dividend. It is not always the case that little is recovered, as recovery depends on the quality of the as--9c9 incurred to realise the assets, says Cameron Duncan of KordaMentha. However, creditors need to know that these processes take time and they may not be paid as soon as they want.
Over 440 Borders Singapore gift-card holders did not collect refunds amounting to about 5$33,280 - over a year after applying for reimbursements from the defunct book chain after it went into liquidation in 2011. They were reimbursed in full - which was possible only because the chain's parent gave up part of what it was entitled to in the liquidation to top up payments to staff and customers.
Vouchers, stored-value cards, discount membership, air miles
Holders of vouchers and stored-value cards are unsecured creditors, while customers on discount membership programmes are generally not entitled to any claims, notes Ms Tan, who has acted for directors, creditors, liquidators and noteholders.
She adds that customers who bought air miles might be entitled to claims as unsecured creditors. It comes down to the terms and conditions of the programmes, be it a discount membership or mileage system.
Unused package from spa/gym/salon
Holders of unused portions of these packages are unsecured creditors. But if the merchants are Case Trust accredited, prepayments are protected and consumers are able to claim back the unused portion following the closure of the merchant.
Small Claims Tribunals orders
A creditor who has obtained an order from the Small Claims Tribunal prior to a company's liquidation does not rank ahead of other unsecured creditors, Ms Tan says.
Credit card payments
For credit or debit card disputes on the non-delivery of merchandise when shops cease operations, the recourse would be through a payment dispute, also referred to as a charge-back, suggests Vincent Tan, head of cards business at OCBC Bank.
The card holder should first attempt to resolve the issue with the merchant directly. But if the merchant is not contactable, the cardholder can complete a dispute form and submit it to the card-issuing bank, and provide supporting documents such as evidence of purchase, expected delivery date, and attempts to interact with the merchant.
Cardholders should also share evidence in the form of news publications or social media posts that the merchant has ceased operations.
There is no fee required for OCBC to process the dispute, but cardholders must report the dispute within 120 days of the transaction processing date, or within 120 days of the last expected date the card holder was to receive the merchandise or services (but not more than 540 days from the transaction processing date).
If the dispute is not resolved at that stage, cardholders can pursue arbitration through MasterCard or Visa, though this will involve a fee of about US$500.
NETS currently does not have a charge-back framework and liability resides with the merchant. Similarly for a PayNow transaction, there is no charge-back rule as it is similar to handing over cash to the merchant but via an electronic or digital channel, so the customer may have to bear the loss unless they are able to resolve this directly with the merchant.