Friday, January 16, 2009

Report: Unpaid Seller's Rights or "Grab the Pants"

Report: Unpaid Seller's Rights or "Grab the Pants"

I did read the book, "The Eatons: The rise and fall of Canada's royal family" by Rod McQueen about five years ago. Unfortunately I lent it to a friend since then and cannot make specific quotations directly. Eatons was run into the ground by departmental competitive pricing at suppliers and sources where bulk purchases might have reduced wholesale prices. In terms of push and pull Eatons spent its history pushing and pulling its own prices up. Inefficient management particularly among the last remaining Eatons, who McQueen described as fairly incompetent in terms of family affairs, managed the business with the adage, "from shirtsleeves to shirt sleeves in three generations," which would not be far off the mark.

An internet search turned up this snippet or fragment of documentary reference to the Hilfiger seizure of assets including a reduction of 33.34% discrepancy in comparative asset values:

Eatons wants seized goods back: sources
Article Abstract:

Insolvent department store chain T Eaton Co Ltd is seeking to force Tommy Hilfiger of Canada Inc to return C$400,000 worth of merchandise which the supplier took back from Quebec stores under seizure before judgment ruling a day before Eaton filed for bankruptcy protection. Eaton wants to get the goods back so that it could be sold during its liquidation sale. The court ruled that merchandise that had already been ordered before it got bankruptcy protection on Aug 23, 1999, could be sold as part of the liqudation sale.

author: Strauss, Marina
Publisher: Bell Globemedia Interactive
Publication Name: Globe & Mail (Toronto, Canada)
Subject: News, opinion and commentary
ISSN: 0319-0714
Year: 1999

Apparently a conflict of legal interpretations on the terms of "unpaid seller’s rights" occurred as this article indicates. According to Canadian bankruptcy law Eatons was within rights to attempt to sell the merchandise at liquidation prices. However whose court decided this? Were they in Quebec? Probably not.
I smell Toronto. Somebody had their Quebec sales laws wrong.

However as Hilfiger is an American company their interpretation of the terms of contract are possibly also at legal odds. Furthermore US Sales of Goods Act may expressly permit seizure of goods at any time as the terms of payment may have been broken, thus a condition of sale or transfer of title may have been made void. Also prescient was the seizure of the goods in question prior to public announcement of insolvency which leads possibly to questions of insider information. It was probably a time for many sellers to, "grab what they could and run screaming for the exits."

Attornment agreements may have been in force under US trade contract laws rather than Canadian ones and Hilfiger may as well have been completely within their rights on terms of credit past due payments and/or installment sales in Quebec Civil Code Article 1746, QCC. Under such Quebec Civil Code terms Hilfiger retained ownership rights until payment in full had been made. This is what leads me to suspect court proceedings on bankruptcy were not taking place in Quebec but probably Ontario. Toronto to be specific - a city of lawyers sans la langue fran├žaise?

However Hilfiger probably extended credit without advanced payments for some time prior to seizure but upon doing the math may have realized that they faced the likelihood of not being paid outstanding for the goods. A hypothec agreement would have ensured repossession options on the clothing as moveable property under Quebec sales law if it was in the contract. If it was not it might have been implied. Under such terms as well and as without them under conditional sales terms, instead, also in Quebec, Hilfiger appeared within contract limits to make repossession especially prior to bankruptcy protection if payments terms had been breached. Maybe that is why they repossessed goods in Quebec rather than other provinces which possibly do not have these conditions and could not thus either be enforced under contract or implied under terms of supplementary laws. In other words, "what a rat's nest!" Somebody at Hilfiger was reading French.

At that point as described in the previous article, T Eaton Co. Ltd. was liquidity and cash poor as well as debt laden. Any litigous proceedings would have probably been in a line up as long as Eaton's company buyers (all at the same counter of suppliers driving each others costs up and profit margins down for decades gilleting the company) and extended far beyond the company's viable credit line or indeed its corporate existence prior to buyout. Eatons Ontario inspired bark may have been far beyond its Quebec-uable bite. Maybe this was the point of it all. Perhaps the re-purchaser of the re-possessed products was in fact none other than Sear's Canada, a local rival, kindly willing to swallow the weakling Eatons whole kit and kaboodle for pennies on the dollar.

Unjust preference: Perhaps this was the case in Eatons liquidation strategy as similar preferences appear to occur globally and locally as in the Daewoo Corporation post IMF Crisis- sell off process which dragged on for years rewarding local creditors with 70% of their debts outstanding while foreign creditors garnered a whopping 30% on larger comparative bills outstanding. Why would Hilfiger wait around if they knew they would not get paid by a bunch of querrelous Canucks? I would grab the pants and run as well.

Fraudulent conveyance: Eatons may have intended to separate sales losses from bricks and mortar assets through sales to a retail real estate holding company at some point and this could have been an attempt to squirrel away assets from ravenous creditors. Another reason to grab the pants first.

Bulk sale: This may be exactly what Sears did and then part sales of outstanding real estate assets could take place to repay creditors. However as our text describes this as a Sales Act in Ontario, it would be quite convenient if this is what almost happened. Ontario would represent the majority of population of Eatons customers and thus probably also probably also the highest concentration of saleable Eatons assets.

By the time Eatons was ready to keel over everyone got their piece (as I remember reading) even on sales flyers and discount sales. Price promotion plans which were intended to be limited to certain product ranges to raise quick operating cash fell to the hordes when, due to fine print errors, ridiculous discounts were applied across entire housewares, appliances and durables departments which quickly killed the dying company in terms of movable saleable assets selling below cost. Sellers who had not exercised their rights were probably kicking themselves. Grevious errors in strategy, terms of goods purchases and sales contracts doomed that sinking ship to history for decades prior to its demise.

Timothy Eaton will probably roll and churn in his grave for eternity.


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