The high court in Johannesburg has granted Absa an order to seize control of the assets of automotive parts retailer AutoZone due to the company’s inability to settle its outstanding debts.
This allows Absa to claim AutoZone’s movable assets under its general notarial bond. This means the bank can take and keep these assets as security.
AutoZone owes Absa R302m which accumulated during a series of financial agreements and defaults that led to the automotive retailer’s “financial distress”.
AutoZone operates 187 wholly owned retail branches and 35 member-owned branches across Southern Africa. The court heard that the company’s acquisition and operational financing were largely supported by Absa through various loan facilities, including a senior facilities agreement concluded on June 1, 2020. This agreement was amended and restated multiple times.
Under this agreement, Absa provided multiple loans to AutoZone, including facility A loan (R115.54m), facility B loan (R231.42m), facility C loan (R75m), facility D loan (R51m), and a capex facility loan (R29.12m). These loans, which had to be settled by June 30, 2024, formed the core of AutoZone’s financial obligations.
Absa said the total outstanding debt included R31.74m plus interest for facility A and R260.19m plus interest for facility B. The bank said it extended a general banking facility and a trade loan facility to AutoZone.
AutoZone’s financial troubles escalated in late 2022 when it failed to make a capital repayment on the facility A loan and could not meet other financial covenants. Despite multiple deferrals and extensions granted by Absa, the company continued to struggle, leading to the appointment of an independent adviser and the initiation of an accelerated sales process.
In March this year, Absa extended the maturity dates of the loans to June 30 and capitalised the interest due. However, on June 25, 2024, it informed AutoZone that no further extensions would be granted. Subsequently, AutoZone’s board decided to commence business rescue proceedings, a resolution that was registered with the Companies and Intellectual Property Commission on July 2, 2024.
At the time the company said despite efforts to improve performance and negotiate debt relief it failed to achieve positive leverage, struggling through a decade of economic turbulence and Covid-19 disruptions.
CEO Dion De Graaff said the pandemic, civil unrest and stagflation further hampered recovery, with increasing debt service obligations draining operational cash. Although liquidity was sufficient to stop negative leverage, it was insufficient to achieve positive leverage, keeping the business at break-even.
By June, with its facilities maturing and Absa refusing to extend debt repayment holidays, AutoZone was forced to seek external assistance.
The court’s ruling empowers Absa to seize AutoZone’s movable assets as security for the outstanding debts. This includes entering all premises where AutoZone’s assets are located and taking possession of these assets.
The bank told the court that it was evaluating the possibility of providing AutoZone with post-commencement funding to support its operations.
AutoZone was ordered to pay the costs of the application on an attorney and client scale.
The business rescue practitioners of AutoZone, which employs about 1,400 employees, told the company’s staff and creditors last week that they had been engaging with parties who had expressed an interest in acquiring the business.
They said there was “reasonable prospect of rescuing AutoZone” subject to the availability of post-commencement finance, support from all stakeholders, including employees, trade suppliers and or a potential buyers taking over the business.
“The company has a valuable brand and market position that can possibly be preserved through business rescue. We believe that the business rescue process will provide a reasonable prospect in achieving a better outcome for all stakeholders than an immediate liquidation,” the business rescue practitioners said in their presentation.
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