Choppies Enterprises and Payless’ chequered relationship has come to a bitter end, as Payless is put up for sale at the instigation of Choppies, determined to recover the millions owed.
The country’s biggest budget grocer, Choppies, has scored a decisive victory over Payless, putting the supermarket under liquidation, while also pursuing Saleem Malik, the owner and major shareholder of Payless who signed up as surety and guarantor and co-principal debtor to the obligations due to Choppies Distribution Centre (CDC), a subsidiary of Choppies that supplies the hundredths stores with goods.
While Choppies was undergoing a corporate scandal last year, the company demanded payment of P121 million, being the capital of monies owing to CDC under a Loan Agreement concluded between CDC and Payless Supermarkets. However, the debt was a subject of dispute, with Payless acknowledging indebtedness of P110 million due to CDC.
The struggling Payless stores, which until last year was relying on its dubious relationship with Choppies, failed to meet its debt obligations to Choppies, resulting in the high court placing the supermarket under provisional liquidation. However, Choppies will continue to be part of Payless, supporting the provisional liquidator in running the stores so that they do not collapse before they could be sold to a potential buyer.
“CDC has ceded any proceeds recovered from Payless Supermarkets to the lenders to the company as security for the indebtedness to the lenders,” Choppies board wrote in the company update released to shareholders.
Choppies has undertaken not to provide any financial assistance to Payless without the consent of creditors and prior to seeking the consent of the lenders, Choppies will provide a motivation to the lenders which sets out the business case for the provision of such financial assistance.
The weakened giant retailer further disclosed that they are going after Malik’s 90 percent shareholding in Payless, which Choppies says he ceded and pledged as security for the performance of the loan that Payless got from CDC.
“CDC issued demand upon Malik for payment of the amount due by Payless Supermarkets to CDC. Malik failed to effect payment of such amount. Accordingly, CDC has instituted action out of the High Court, seeking a judgement against Malik for the full capital of the indebtedness of Payless to CDC and interest thereon, and an order, attaching the shares held by Malik in Payless Supermarkets. Summons was served on Malik on 3 March 2020,” Choppies board said.
The relationship between Choppies and Payless has been a subject of concern. In 2018, Competition and Consumer Authority (CCA) rejected an application for a buying group exemption from CDC and Payless.
The retailers had sought approval from the anti-trust body to allow them to continue purchasing goods as a group, which will allow the two retailers an advantage of better purchasing power which would translate into lower prices, better quality products and therefore “availing benefits to consumers and employees.”
The rejection was the second one after Choppies and Payless made a similar application in 2014. While it was rejected at the time, the applicants were given time to wind up their unauthorised relationship tied together by the buying group agreement. Choppies and Payless argued that the agreement has helped Payless stay afloat through improved financial performance that resulted in stabilised cash flows, retaining the existing staff and adding 250 new jobs since last exemption, bringing staff complement from 400 to 650.
However, the regulator refused to grant the second application based on adverse findings which revealed a case of substantially lessened competition in the considered market. CCA’s assessment established that there is no competition between Choppies and Payless, with the two retailers running same monthly promotions where they had same goods on promotion at identical or similar prices.
The competition watchdog added that allowing the buying group agreement to go on is akin to condoning Choppies and Payless’ continued price fixing and distortion of competition. The regulator ordered that Choppies and Payless dissolve the buying group agreement since it has no substantial economic benefits for the public.