‘Something very wrong’ about transactions at Clerys

On September 18th, 2012, Boston-based investment group Gordon Brothers acquired Clerys out of receivership. A property foray in the Celtic Tiger years had burdened Clery & Co (1941) plc with debt levels that it couldn't sustain after the economy crashed in 2008 and so the family of Denis Guiney lost control of the historic department store after more than 70 years as owners.

Gordon Brothers, which itself has been around since 1903, said it was “committed” to “revitalising” Clerys’ fortunes.

"Today's announcement will facilitate Clerys to make a fresh start," said Frank Morton, chief executive of Gordon Brothers Europe. "We are acutely conscious of and respectful towards its heritage and tradition."

That statement looks like a bad joke now after the events of the past six days, which have seen the historic Clerys department store on O’Connell Street closed for good, staff shown the door with nothing more than a promise of statutory redundancy, and concession holders left wondering if they will be paid the money they are due from selling their merchandise since May 1st or if they’ll get their €3 million in summer stock released before the season ends.

That’s to say nothing of the other creditors left swinging by OCS Operations Ltd, the entity that managed the Clerys store and was placed into liquidation late last week in dramatic fashion.

At 2.30am last Friday, while the Clerys staff were asleep in their beds, Gordon Brothers sold the business to a joint venture called Natrium Ltd comprising Irish developer D2 Private and Cheyne Capital Management in the UK, with some funding from Quadrant Real Estate Partners in Atlanta.

More than two years ago, Gordon Brothers had split the Clerys business into two separate parts – a property company, which owns the building, and an operating entity, which ran the store. It went unnoticed at the time but that move has proved to be highly significant. Within hours of acquiring Clerys, Natrium had sold the operating business on to specialist insolvency practitioners in the UK for €1 and it is they who petitioned the High Court late on Friday afternoon to have Kieran Wallace and Eamonn Richardson of KPMG appointed as provisional liquidators.

Concession holders

The petition was granted and the liquidators moved in to Clerys to inform staff and concession holders that there was no money in the kitty and the business would close with immediate effect. Other than noting that it had sold the business for an undisclosed sum, Gordon Brothers has said nothing publicly about the sale.

The Boston company is reported to have sold Clerys for €29 million, almost double the €15 million it paid Bank of Ireland in 2012 to secure control of the business from the Guiney family. So it has made a handsome profit from its three years in charge.

Deirdre Foley’s Natrium now owns one of the most famous and valuable buildings in Ireland, yet has maintained radio silence on its purchase in a manner that would make any captain of a Russian nuclear submarine proud.

The value is in the property and Natrium is rumoured to have a plan to redevelop the ground floor for retail with offices upstairs. There’s talk of a hotel, too. The timing looks good, with the extension of the Luas to Clerys’ doorstep providing the building with valuable public transport to the southside of Dublin. And the economy is bouncing back from years of austerity.

The 50 concession holders in Clerys are rightly angry at the speed and secrecy involved in the dramatic events of last Friday. Helen Lynch, the owner of Best of Irish Designs, was on holiday in Tenerife when one of her staff rang to say the store was being closed.

“I was in a state of shock,” she told me on Monday. Lynch hadn’t been paid by Clerys since May 1st and has about €150,000 stock in the store that has yet to be released by the liquidators.

The contracts operated by Clerys with its concession holders, meant the likes of Lynch operated their own businesses within the store and employed their own staff.

Each evening, Clerys would clear the tills and, once a month, it would hand over a cheque to the concession holders to reflect their transactions for the previous month, minus its commission fee. In some cases that commission was more than 20 per cent and paid for rent, utilities, security, and other costs.

The concession holders’ money was to be held in trust before being released each month to the various businesses. It’s an arrangement common in the retail sector.

Working capital

The concession holders now want to know where their money is from customer transactions dating back to May 1st. Somewhere between €2 million and €3 million is owed to them. They were due to be paid on Monday for transactions in the month of May but no payment was made.

Gordon Brothers is believed to have left €2 million of working capital in the business for this purpose but the whereabouts of this money has yet to be confirmed. “There’s something very wrong about the way this all happened,” said one concession holder, asking not to be named. “This doesn’t happen in a normal commercial transaction.”

There’s the rub. Legally, there might be nothing wrong with the transactions last Friday that have led to Clerys being closed after 162 years in business although this could yet be tested by creditors.

Morally, they stink.

Twitter: @CiaranHancock1