FRONTIERCO - A YEAR AFTER THEY CAUGHT THE BUS

Today, exactly a year ago, business rescue proceedings in relation to the New House of Busby commenced when the directors of New House of Busby adopted a resolution to file for business rescue. Mindful of their financial distress, the CEO of the company and its attorney, Paul Katzeff of C & A Friedlander, consulted Hans Klopper of BDO Business Restructuring upon being alerted to the legal requirement contained in the Companies Act (s129(7)) that directors of companies under financial distress have a duty to take certain steps.

The Companies Act requires of directors of companies when they have reasonable grounds to believe that their company is financially distressed, and where they have not adopted a resolution to file for business rescue, that they are required to deliver a notice to their creditors and other affected persons with reasons for not doing so. At the height of the first wave of the Covid 19 pandemic at the time and when Bernard Mostert and his co-directors knew that the company was under severe financial distress and had to consider its position carefully going forward.

Despite the company’s financial distress, Mostert and his team had potential access to new funding. The company’s board of directors were alerted to the post-commencement finance provisions in the Companies Act and were advised that, in the circumstances, the company was a candidate for a successful business rescue.

The Busby board took the advice and understood that the timing for the initiation of business rescue proceedings was vitally important. The general criticism by professionals in jurisdictions such as the USA and the UK (where restructuring regimes have been the order of the day for many decades) is that directors of companies in financial distress do not act immediately when the first sign of distress appears but, instead, wait until it is literally “a quarter to midnight” when it is normally too late! Various jurisdictions have differing definitions of the test of “inability to pay debts” but the reality is that any prudent director normally knows when there is financial distress and whether they are able to pay their debts as they fall due or not.

Bernard Mostert and his team realised that it was is foolish to risk the entire business because of one’s ego. What they did was to speak to a restructuring professional before it was too late!

So, business rescue proceedings commenced in all earnest today, a year ago on 30 July 2020, and Hans Klopper and his team at BDO together with Bernard Mostert and his team, went to work, despite being under lockdown. For 88 consecutive days after that BDO and Busby’s management team engaged with all affected persons including banks, landlords, licensors, and trade and other creditors. Some 240 virtual meetings with all stakeholders were held on MS Teams and the protection afforded to post-commencement financiers under the Companies Act was again explained and understood. In this process, the framework for a business rescue plan was developed by the business rescue practitioners whilst engaging with the banks, management, and new financiers. The business rescue plan was adopted by an overwhelming majority on 21 October 2020 and the company exited from business rescue proceedings on 24 November 2020 which meant that the company was able to enter the festive season with a restructured business.

Needless to say that the second wave of Covid 19 hit in December 2020 and regardless of that the company and the business rescue practitioners nevertheless achieved the successful implementation of the business rescue plan by the end of January 2021.

Today the company is successfully trading in some 115 stores and have completely restructured its affairs and thereby saved the jobs of some 600 employees in what could be described as one of the most successful retail rescues in South Africa to date.

The company subsequently rebranded to FrontierCo and represents various well-known brands in Southern Africa including GUESS, ALDO, Call It Spring, Kipling and Delsey and also owns the Travelite and Busby brands.

What was the reason for a successful restructuring? Undoubtedly the fact that management and the BRPs were aligned in their thinking whereby new money could be introduced to the company without any fear of being feeding a "bottomless pit".

The House of Busby was founded in 1986. The first Busby retail store specialised in handbags and luggage and quickly became a brand synonymous with high-quality leather accessories in South Africa. In the intervening years, Busby has been listed on the Johannesburg Stock Exchange, privatised by way of a geared private equity transaction that was characterised by a number of highly publicised fallouts and legal actions between related parties which would appear to have led to the business’s failure at the time. Subsequently the Business was acquired and partly de-leveraged by a consortium led by Bushold.

Today, the company, trading as FrontierCo, has four core competencies – the development of international apparel and footwear brands; luggage and leather goods; branded and optical eyewear; and private label development.

The company operates its own flagship and factory stores and services the department store and independent store channels, which creates a formidable retail reach within Southern Africa.?