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Receivership of Magazine Retailer
Situation:
Over ninety years this magazine retailer had grown from a single newsstand to a highly successful chain of thirteen retail stores selling periodicals, sports memorabilia, trading cards and collectibles. Unfortunately the transition from second to third generation ownership had not gone smoothly. The company was facing severe cash flow problems and a number of trade creditors had placed the company on COD. The owner was distracted by a number of personal issues and not actively engaged in the company.
The company’s $1.7 million credit facility with its lender had come due four months earlier but no payments had been made since that time. It was also discovered that the owner had diverted over $250,000 to another entity he controlled. Repeated attempts by the lender to contact the owner had gone unanswered. Seeing no alternative, the lender asked the court to appoint a Receiver.
Task:
LMG’s first task was to protect the interests of all the stakeholders involved by stabilizing operations and returning the business to positive cash flow. The next task was to develop a plan to pay off the lender’s secured debt, if possible, as dictated by the judge’s receivership order.
Actions:
LMG took immediate control of the company's operations. Inventory purchases were cut to a bare minimum. Basic cash controls were established in response to an unusual amount of cash register balance shortfalls and to address rampant employee pilferage issues. Poor inventory control had resulted in a large quantity of excess inventory being located at the company’s warehouse rather than the retail stores. This inventory was immediately shipped to the retail locations where it could be sold. Once the situation was stabilized, reports were created to enable management to improve profitability by better utilizing information contained within their point-of-sale system.
Result:
By converting excess inventory to cash and reducing cash outflows, LMG was able to generate the funds needed to pay off the balance of the company’s credit facility and request that the court discharge the receivership. Within two months LMG was able to pay off the lender. Once the lender was paid in full control of the company was returned to the owner.
