It was Edward Heath, the British Prime Minister, who coined the phrase “the unacceptable face of capitalism” about a particularly odious set of manoeuvres in the 1970s.
More than 40 years later, we have just seen the ugliest and most brutal face of capitalism in Ireland. The commercial transaction that destroyed Clerys department store was calculated to do exactly that. What makes it worse, in many ways, is that our laws allowed it to happen.
Only three or four years ago Clerys was bought, lock stock and barrel by an American company called Gordon Brothers. “We deal in change. We deliver with capital.” That’s their motto, and their history consists of buying, operating, and when it suits them closing businesses around the world.
Right now, apart from Clerys, their website is advertising the closure of a company called Anna’s Linens. It’s a 30-year old company with 3,200 employees that operates around 250 stores throughout the US and Puerto Rico. Gordon Brothers is selling off the entire stock of the company at fantastic price reductions in a “going out of business sale”.
At the same time they’re selling more or less all of the equipment of another closed-down company, the Hodges Trucking Company. They’re advertising dozens of fork-lift trucks, cranes, and other equipment in yet another fire sale.
It wasn’t going to be like that with Clerys. The day Gordon Brothers acquired Clerys, this is what they put on their website (along with lots more palaver):
“Gordon Brothers worked with Clerys and their incumbent bankers to tender a proposal that not only offered the best value possible but was also sympathetic to the heritage of Clerys and its place within the Irish community … Clerys department store remained the focal point for Gordon Brothers. Preservation of this iconic store was the primary objective and, as such, the day-to-day management of the Clerys store was maintained, securing employment for all staff, including those from the concession partners … Gordon Brothers agreed settlement claims with trade suppliers in record time giving them the confidence to continue trading with Clerys. In short, Gordon Brothers has ensured value preservation for stakeholders including suppliers, concession partners and employees.”
They must have been sniggering up their sleeves when they wrote that. The moment they acquired Clerys, they split it into two parts – one part owned the property (let’s call it the building, for convenience) and the other part operated the business (let’s call that the shop). And then the building started charging the shop punitive rent and charges – by one estimate €300,000 a month.
There was no possibility, in a regime like that, of Clerys surviving. The operation needed investment and modernising, and instead every available cent was going to pay rent – to its owner. In the returns made to the Companies Office, it transpires that the building made €5 million in profit, while the shop made €2 million in losses.
When they made those returns, Gordon Brothers announced it was their intention to deal with “customers, staff, concession partners and suppliers on a legal, ethical, fair and sustainable basis”.
Ethical and fair are two words that clearly have very elastic meanings for some people. In the middle of the night on June 12 Gordon Brothers sold both bits of the operation in a single transaction for a profit of somewhere between €10 million and €15m. They sold it to a company I’ve never heard of before called Natrium.
Within minutes, Natrium had sold the shop (the operating half of the business), it is believed for €1 (yes, that’s right, one of the oldest and most iconic businesses in Ireland sold for one euro). The people to whom it was sold were UK insolvency specialists, and again within hours they had installed a liquidator. The rest we know – the shop immediately closed, loyal, hard-working staff locked out and told the company they had spent their lives helping to build had no responsibility whatever for them.
There are two things about this. The first is that this was a planned and orchestrated property transaction. Gordon Brothers in the first instance had no interest whatever in building the Clerys business. They took as much cash out of it as fast as they could, and then sold it to the highest bidder.
Because of the way Gordon Brothers had divided the company into two parts, the new owners, Natrium, were able to, in effect, secure vacant possession of the property, which was all they wanted. They used the laws surrounding liquidation, in a planned and entirely cynical operation, to divest themselves of any responsibility to the “customers, staff, concession partners and suppliers” who were going to be treated on a “legal, ethical, fair and sustainable basis”.
Under Irish company law, liquidation is supposed to be the last resort for a company that can no longer pay its bills and is in danger of trading while insolvent. If a business is still a going concern, as Clerys was (despite its problems), there are other options, like receivership or examinership.
But a receiver or an examiner has to treat the business as if it is still operational, dealing with staff, for example, by giving notice of redundancy, by negotiating with their representatives, by figuring out how to keep jobs going.
A liquidator has to do none of those things. And that’s where the second thing comes in. Our law allows this to happen. It allows these dead-of-night secret transactions to be done in such a way that laws designed to protect people are simply set to one side. The liquidation, in effect, supersedes everything – including any and all considerations of morality.
Now, there is apparently some grand plan to develop the property. That will of course require extensive planning permission. In considering whether or not to grant such permission, and thereby enable more millions in profit to be made, the relevant authorities won’t be able to take into account the fact that so many people have been so shamefully treated for the sake of profit.
Company law was not designed to enable people to walk away from their obligations in order to maximise profit, and it has been used for precisely that purpose. It’s almost certainly not possible to change company law retrospectively, but we have to change it to prevent this kind of immoral behaviour.
But we can also, and we must, change the planning laws, to make sure that no-one can go on to make more millions from commercial developments in circumstances like these. Planning law at the moment enables the State to set down all sorts of conditions before it grants a permission. But it doesn’t include a requirement that the applicant must be a person or a company that has behaved ethically in its previous dealings with regard to the area it’s proposing to develop.
But it should. If you’re not prepared to meet your obligations and treat people ethically and with decency, you should not expect the Irish state to continue to facilitate the growth of your wealth. A simple, and essential, trade-off.