Court Shuts Office Depot Stores in Israel Shut Amid Cash-flow Problems

Avi Malka, who bought the chain earlier this year, is also taking the heat from creditors of his ML and Jump clothing stores.

Eight months after the local Office Depot franchise was sold to Avi Malka and his brother Miran, the Lod District Court ordered the chain's 31 locations here closed at least until tomorrow. In its ruling on Friday, the court also issued a preliminary stay of proceedings at the request of trustees who claim that Avi Malka had failed to meet his payment obligations on the purchase.

Malka also owns the Jump fashion chain and Matim Li, a chain of plus-size clothing stores also known as ML. According to a number of its suppliers, ML is not making timely payment on its obligations.

The trustees in the Office Depot case, who represent Office Depot's U.S.-based parent company and creditor Mizrahi-Tefahot Bank, sought the court order on Friday claiming that the local Office Depot franchise issued a letter last week acknowledging that it could not meet its current obligations. That raised concerns that the company would shortly collapse, the trustees said.

In an interview over the weekend, Avi Malka told TheMarker he did not expect to fight efforts to sell Office Depot to another buyer. "I have to put my management energies into my other companies, ML and Jump," he said. "On the other hand you never can know." He added that he had met on Friday with suppliers of his clothing chains and had struck a deal with 75% of them, with the support of the banks involved, to spread out his payments over five years. ML and Jump will continue to operate normally, he insisted.

He acknowledged owing NIS 40 million to suppliers of his clothing stores in addition to NIS 20 million on the purchase of Office Depot. Because suppliers had been providing merchandise to Office Depot on a consignment basis, meaning that they retained ownership of it until it was sold, only NIS 9.5 million was owed to suppliers of the chain, Malka explained.

On Thursday a direct mail printing house owned by the Haaretz Group, Oniya Shapira, filed a request for liquidation of ML, claiming that the fashion chain had begun making payment by post-dated check without its consent and that the printer was owed NIS 138,000. ML said in response that it had withheld payment because the agreed upon work had not been performed. Another company, Tirochi, which supplies fabric to ML, claims that it is owed about NIS 700,000 from Malka's chain and would also seek its dissolution in court.

For his part, Malka told TheMarker last week that the sums owed to suppliers are in dispute. "A supplier was supposed to supply us with one thing and supplied something else, as so forth," he said. "They have asked to talk to me [and] then I meet with them. No checks of ours have bounced and I am meeting all of my payments with respect to Office Depot. It's just a commercial dispute." The Bailiff's Office, however, has ten files currently pending against ML involving amounts totaling over one million shekels.

Avi and Miran Malka purchased Office Depot in February in insolvency proceedings for NIS 42 million, which was to be paid in 17 installments through the use of post-dated checks. The trustees claim, however, that the buyers have repeatedly sought to defer payments. According to the trustees, on October 8, Avi Malka's company notified them of cash-flow problems and asked for a delay of seven business days in making the NIS 1.8 million payment for the month.

The trustees said they assented, meaning that the payment would have been due on October 20, but they claim Malka then asked for a further delay to October 30. The trustees say they refused and proceeded to cash the check for October, but claim that Malka's company stopped payment on it.

Mall representatives where Office Depot has locations said last week that Malka's company had been meeting rent payments on its stores, but added that the company's performance had not met Malka's hopes and had become a financial burden.

Nir Keidar