The transition to being taken over by Musgrave had been going to plan – until yesterday

EXECUTIVES AT Superquinn were surprised on Monday evening when a store manager contacted head office to say the KGB had arrived in his shop and were asking some searching questions.

It did not take long to work out that it was accountants, KPMG, and not the old Soviet secret service. Three banks – Bank of Ireland, AIB, and National Irish Bank, owed a total of €275 million in property-related loans – had appointed two of the firm’s partners, Kieran Wallace and Eamonn Richardson, as receivers to the grocery chain.

The banks took control as a precursor to the announcement on Tuesday morning that wholesaler and retail franchise operator Musgrave had agreed to buy Superquinn’s 24 stores, its distribution division and other assets. The deal would free the chain of its €275 million property debt, a consequence of the €450 million purchase of the business in 2005 by Select Retail Holdings from its founder, Fergal Quinn.

Senior figures at Superquinn had known this was in the offing; Musgrave had hammered out a deal with the banks last week. However, the speed at which everything proceeded surprised even the chain’s executives.

It was clear the banks and Musgrave regarded getting it done as quickly and as smoothly as possible as a priority. After that it was a question of ensuring the message went out to staff, customers and suppliers that Superquinn was still in business.

Suppliers were going to lose around €25 million, but were assured they would be paid for whatever was on the shelves and whatever they supplied for the duration of the receivership. Musgrave committed itself to working with them once it took control, assuming the Competition Authority gave it the green light.

It was all going to plan, until yesterday. Superquinn’s chief executive Andrew Street resigned, primarily because he was not happy with the way suppliers were being treated by the receivers.

In an e-mail to staff, Street blamed the Bank of Ireland-led syndicate, whose members, he said, chose receivership to secure the maximum amount of the sale proceeds for themselves.

“This is being done at considerable cost to our suppliers,” he said. Street added he was distressed to see queues of suppliers in the company’s reception waiting to see whether they would be paid, and in many cases, being sent away empty-handed.

“Many of them are small businesses and most of them are long-time and loyal supporters of the company.” He said he had hoped the banks would have used a portion of the proceeds to pay suppliers in full, but they refused, and this was a direct result of a policy decided on by Bank of Ireland’s executive.

He also pointed out the problem was not simply that long-standing suppliers were losing out, the issue was hitting the chain’s ability to restock its shelves, with inevitable consequences for sales.

Wallace responded yesterday by saying Street’s resignation was regrettable in light of his earlier commitment to stay with the business. He also argued that the receivership is being conducted in a fair and equitable manner, and stressed payments were being fast-tracked to suppliers where possible.

However, late yesterday, Superquinn directors trumped all this by going to the High Court in a bid to have an examiner appointed to the business. That action is on hold and the receivers are still in the driving seat, but if it succeeds, the banks will lose control of the process.

Examinership would mean the company would get High Court protection from all creditors, secured lenders included, for up to 100 days. Such a move would not necessarily suit suppliers either, and those who are critical of the receivership are even more worried about the consequences of an examinership.

The sums lost by individual businesses range from at least the high six figures down to tens of thousands. One large-scale creditor, whose business has lost several hundred thousand euro, said yesterday he was aware of a number of others which have stopped supplying Superquinn.

However, others are sticking with the new regime, arguing it is ultimately the best outcome. Vincent Carton, managing director of Carton Brothers, better known as Manor Farm chickens, argued that selling Superquinn to an Irish company with an existing commitment to domestic suppliers was the best outcome.

He said Musgrave represents Superquinn’s best chance of wresting market share back from Tesco and the discounters, which have been steadily eating into its slice of the grocery trade for the last seven years.

“It could be worse – it could have been a British business with their own suppliers, or Superquinn could have been closed down altogether,” he said.

Carton said his business was still getting to grips with the cost of the receivership, and calculates the figure in the “hundreds of thousands”.

Nonetheless, one source said suppliers were facing a good deal of hardship, and pointed out the banks driving the process were putting pressure on some of these businesses, whose taxes were being used to bail out two of them, Bank of Ireland and AIB. He said the Government needed to step in and “tell the banks – the banks it owns – to stop fluting around with people’s careers and people’s livelihoods and wise up”.

PARTING SHOT: E-MAIL CRITICISES RECEIVERSHIP PROCESS

EDITED VERSION of an e-mail sent by Andrew Street to colleagues explaining why he resigned:

Dear all,

The receivership process that has been imposed on the business by the bank syndicate is not being conducted in a way I find acceptable.

This particular process has been selected by the banks concerned in order that they can secure the maximum amount of the sale proceeds for themselves.

This is being done at considerable cost to our suppliers. The board of Superquinn has made it clear consistently to the banks that they do not support this approach.

Over the last few days it has been distressing to see queues of suppliers in our reception waiting to see if they will be paid and, in many cases, being turned away empty handed by the receiver.

Many of them are small businesses and most of them are long-time and loyal supporters of the company. As well as the financial pain inflicted on these suppliers this policy is causing havoc to our stock resupply with inevitable sales consequences.

I had hoped that the banks would have the good grace and sense to use a relatively small portion of the substantial proceeds of the sale that they will receive to pay suppliers in full. They have refused to do this. A course of action which I am told by senior management in the Bank of Ireland (the lead bank in the syndicate) has been approved at the highest level in the bank executive.

This approach is all the more surprising because most of the suppliers affected are also customers of one or other of the syndicate banks.

In addition to this, I am no longer able to work with one of the appointed joint receivers, Kieran Wallace of KPMG.

As a result of the above, I have concluded that I can no longer continue in my present position and I wish to inform you that I am resigning as chief executive of Superquinn.

I had hoped to steer the company out of its difficulties and into calmer waters and although we have made considerable progress together over the last few months, I will not now be able to complete this task.

Thank you all for your support in the short time I have been here and I wish you the very best for the future.

Regards, Andrew