Court to Hear Kika Request Today on Stay of Proceedings Amid Mass of Debt

Hopes remain of reopening Netanya furniture retailer in dept. store format.

After closing Thursday in the face of a mountain of unpaid debt - NIS 177 million - the Netanya furniture and housewares store Kika plans to reopen if its request for protection from creditors is granted, according to knowledgeable sources.

The final straw appears to have been the seizure of about NIS 3.5 million in funds by Bank Leumi and Bank Hapoalim.

Kika employees outside their Netanya store.
David Bachar

The application for a stay of proceedings was filed on Thursday. It will be considered by the Central District Court in Petah Tikva on Sunday.

A temporary stay was issued by Judge Ilan Shiloh. Kika Israel, the local franchise of the Austria-based international chain, is owned by businessman Solomon Batito (85% ) and Ashtrom Properties (15% ).

Knowledgeable sources implied that Bank Leumi was to blame for the current situation; Leumi seized more than NIS 2 million in funds deposited into Kika Israel's accounts by credit firms. Bank Hapoalim followed suit several days later, seizing more than NIS 1 million in the same way. These measures blocked Kika's access to about NIS 3.5 million in its accounts.

It appears that Bank Hapoalim was willing to release its portion of the funds, but Bank Leumi would not relent. As a result, sources at Kika said, the store was unable to meet its payroll this month or to pay suppliers.

Leumi appears to have taken action out of an understanding that Kika in Austria had decided not to inject funds into its Israeli franchise. The Austrian company considered becoming a partner in the Israeli venture, but announced several days ago that it had rejected the idea. Bank Hapoalim did not explain its decision. Ashtrom said it would make NIS 750,000 available to trustees if both banks agreed to make the same commitment.

On Thursday Kika employees demonstrated outside the locked store, demanding their April salaries. Hopes that CEO Zvika Goldenberg would meet with them in the evening were dashed when he failed to appear.

Some employees had planned to camp out outside the store over the weekend, but at Goldenberg's request they decided against the move.

"I pitched a tent," furniture department manager Rafael Lugasi said, "but I dismantled it after I spoke to the CEO," explaining that in discussions that continued late into the night Goldenberg had asked employees to refrain from provocative actions ahead of Sunday's court hearing.

"If the court doesn't grant the stay of proceedings," Lugasi added, "we'll apply to the Supreme Court. We want to get up in the morning to go to work, not to look for other jobs," Lugasi said, adding that he liked working at Kika. Guards were posted at the store over the weekend.

Kika Israel acquired its 10-year franchise, with an option for another 20 years, from the Austrian firm for an agreed price of NIS 6.3 million, but the franchise fee was not paid and was converted into a loan by the company's owners. Kika Israel also promised the Austrian firm fixed payments as well as a percentage of sales. The initial plan was for a second Kika store to open in Israel this year with two others to open by 2014.

In the nine months since the Netanya store opened there were numerous customer complaints about poor service and problems in filling orders.

According to the request for stay of proceedings, Kika Israel owes NIS 177 million, including about NIS 27.2 million to Bank Leumi and NIS 42.7 million to Bank Hapoalim, NIS 1.8 million in unpaid April payroll, NIS 30 million to suppliers, about NIS 4 to customers and NIS 72 million to shareholders, including NIS 47 million to Ashtrom Properties.

If Kika does reopen it is expected to sell on a cash-and-carry basis only at first, offering merchandise in stock at discount prices. Kika Israel would presumably look for a buyer during that period. If it doesn't find one, it is expected to hold a liquidation sale.

TheMarker has learned that Ashtrom Properties hopes to convert the Kika space into a department store with furniture and appliance departments, among others. Ashtrom declined to comment.