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Lewis court case depicts frequent bad debt frenzy
Lewis court case depicts frequent bad debt frenzy

Lewis court case depicts frequent bad debt frenzy

RETAILER NEWS - Aug 25th 2016, 10:26

COURT papers in the unprecedented legal battle between furniture retailer Lewis Group and shareholder Dave Woollam provide details of the extremes to which management allegedly went to hide the grim reality of the group’s poor performance. 

Woollam wants the company to act against four directors — CEO Johan Enslin, chief financial officer Les Davies, chairman David Nurek, and audit and risk committee chairman Hilton Saven — whom he alleges have been delinquent.

New evidence submitted to the High Court in Cape Town by Woollam describes the frenzied activity as staff were required, before the interim and annual results, to take extreme action to meet management’s targets and ensure the debtors’ book met their expectations, regardless of the underlying reality.

Woollam, a director of Summit Financial Partners, estimates one critical result of the alleged widespread manipulation was that the impairment provision was understated by R822m in financial 2016.

The court is due to hear the case on Monday.

On Tuesday, Woollam asked the court to accept damning supplementary evidence based on submissions by Lewis staff who had approached Woollam after hearing about his case.

The affidavits describe the "semi-annual write-off process" aimed at justifying lower bad debt provisions. Staff were pressured to get customers to make one full or partial payment on their account. They worked long hours and visited customers in a bid to reactivate delinquent accounts.

The affidavits describe an aggressive process driven by threats of repossession. Repossessed goods would be recorded as spoiled inventory and sold off at huge discounts.

In cases deemed hopelessly delinquent, branches were often instructed to reverse the credit agreement and reissue a cash sales invoice equal to the amount that had already been paid off. This was done to avoid bad debt provisions on the transaction.

In his affidavit Woollam says the evidence shows Lewis has been committing fraud. "Lewis represented that its impairment provision is better than what they knew it actually was. Further, Lewis knew shareholders and creditors would act on the correctness of such representation and that they would do so at their detriment."

On Monday, Lewis will tell the court why it should dismiss the section 165 derivative case.

Lewis did not want to comment on the latest developments in the case. But previously, the board had contended that Woollam’s action was vexatious and without merit and that he was motivated by malice and "in pursuit of a vendetta".

It said Woollam was not acting in good faith, as he had bought his shares long after he had investigated the company and identified the issues.

The Lewis board has also accused Woollam of hoping to benefit from a short position he held in the shares.

Lewis said on Wednesday its "section 165(3) application is presently under judicial consideration, and therefore, prohibited from public discussion".From DFM Publishers (Pty) Ltd 

Read more about: south africa | retail | lewis

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