Court Gives Mega 10 Days to Work Out Debt Repayment Arrangement With Its Creditors

Beleaguered supermarket chain is trying to spread out payment of its $344m debt to suppliers

Ofer Vaknin

The financially troubled Mega supermarket chain was given 10 days’ breathing space on Wednesday by the Central District Court, which allowed the food retailer to convene a meeting of its creditors in an effort to spread out payment of its 1.3-billion-shekel ($344 million) debt.

The court order will not allow Mega to breathe easily, however. Until the meeting, the court ordered Mega – which is owned by Alon Blue Square Israel – to pay its suppliers every week in cash for all merchandise supplied that week. Rent on leased locations is to be paid two weeks in advance. Judge Ilan S. Shiloh declined to appoint a trustee or overseer for Mega for the short two-week period.

A recovery plan that Mega has developed includes closing branches and laying off some staff, a move that has already been approved by representatives of Mega employees and the Histadrut labor federation. At the moment, however, a major concern for the chain is maintaining supplies over the next two weeks. Some suppliers have already stopped providing goods, but store shelves are only slowly emptying.

As of last night, shortages of basic merchandise only existed for isolated items. A central Tel Aviv branch, for example, was out of six packs of mineral water. Also, only a few bottles of its house brand of water remained. Another Tel Aviv Mega location was out of eggs and didn’t have a wide supply of vegetables.

Conspicuous among suppliers who have stopped providing merchandise to Mega’s food retail locations, which include You and Zol B’Shefa stores, are the Tempo beverage group and Strauss, which only supplied dairy products to some branches of Mega Ba’ir on Wednesday morning. The food manufacturers took the step on the advice of their lawyers (before the court’s decision later in the day), in the belief that until the court order was issued, Mega would not be obligated to pay for merchandise. Alon Blue Square’s Alonit convenience stores were also slightly affected, as was – to a lesser extent – Eden Teva Market, which is 51% owned by Alon Blue Square.

AM:PM convenience stores, which are wholly owned by Alon Blue Square, were managing to fully stock shelves. The retailer is making efforts to demonstrate to suppliers that it is an entirely independent chain from Mega, and many apparently have been persuaded.

The judge’s order is bad news for any small suppliers owed less than 800,000 shekels by Mega. These suppliers were initially slated to be paid by tomorrow, but that will not happen now. For the time being, all of Mega’s past debts will be suspended, including those that had been due to be paid on Friday. Instead, the suppliers will receive cash payments on a weekly basis for future merchandise provided. The judge also required Alon Blue Square CEO Avigdor Kaplan, also the chairman of Mega supermarkets, to ensure that Mega does not buy merchandise it cannot pay for.

In the request Mega submitted to the court on Monday, the chain initially committed to fully paying suppliers who were owed less than 800,000 shekels each – most of whom are small businesses – so they would not be seriously harmed. The other creditors, according to that initial Mega plan, would have been paid 25% of the debt tomorrow, with the remaining balance in future weekly installments. But Judge Shiloh chose instead to suspend payment on all prior outstanding debts.

Reacting to Wednesday's court order, Mega said, “We are pleased with the confidence the court has placed in the Mega chain to continue to exist for its employees, suppliers and customers. Our partners, including the suppliers, landlords and banks, have expressed their clear desire for Mega to continue regular operations and to develop the recovery plan, to return to a path of growth as soon as possible.”

Mega’s largest creditor, Bank Hapoalim, and suppliers of the chain unsuccessfully sought a court order for a trustee to oversee the retailer’s operations and a formal creditors’ stay of proceedings. Mega owes Bank Hapoalim over 311 million shekels – more than a quarter of the debt at stake in the case.

If the sentiment among suppliers at the creditors’ meeting is similar to the prevailing mood at Wedensday's court hearing, Mega will have a hard time reaching an agreement over the approximately 700 million shekels creditors are owed. Lawyers for the major suppliers expressed a lack of confidence in the current management at Mega, and its recovery plans.

Mega currently has a staff of 6,000, but 1,000 of them are slated for dismissal based on the agreement signed with the Histadrut. The agreement also calls for the closure of 32 supermarket locations and 35 million shekels in wage concessions, in exchange for giving the workers a 33% ownership stake in the company.