■ This is the second part of “The gift that keeps on giving,” published in the October issue.
“The gift that keeps on giving” reported on the closure of Clery’s department store in Dublin in June 2015 with the loss of 130 jobs and about 300 operators of franchises.
The background is as follows. Gordon Brothers had bought the store in 2012 when it had bank debt of €20 million. They got a write-down on the debt to €12 million. The company was also restructured into two companies: Propco (the property-owning company) and Opco (the operating company). Natrium bought the companies at 2:30 a.m. on 12 June for €29 million. Gordon Brothers are believed to have made a profit of €6½ million. The operating company was sold to an insolvency specialist who petitioned the High Court to appoint liquidators. The store was closed by 6 p.m.
At the time of the original article in Socialist Voice it was pointed out that the real asst was the store itself. By separating Clery’s into two entities it was possible to crystallise the losses into the operating company, and that left the property company unencumbered by debt.
Needless to say, neither the workers nor the franchisees were too happy with the situation. Given the iconic status of Clery’s, the Government was shocked by the speed and the callous nature of the closure. It had status as part of the heritage of the country, situated in the main street of the capital city, and there was a perception that the workers and the franchisees had been treated badly.
The Government was forced to act. It attempted to bring charges against Deirdre Foley of Natrium Consortium and OCS Operations Ltd. This failed; but Justice for Clery’s Workers kept up their campaign. Eventually, in 2017, there was a confidential deal made through SIPTU, with the workers receiving a “goodwill payment.” Before this deal they had received only the statutory redundancy payment. This has cost the state about €2½ million.
There also seems to be a commitment about jobs when the new entity is developed. However, there will be a different company involved, so how that will operate is debatable.
A deal was also made with the franchise owners, on the condition that they would not sue. The franchise owners were companies like Best Menswear, Ecco, Barbour, and various catering operations. The franchisers were owed €1.4 million, of which they were paid €650,000 after the closure from the funds of OCS Operations.
Gordon Brothers agreed to fund the shortfall pending a High Court case that sought the disqualification of two executives of Gordon Brothers from acting as company directors. The offer from Gordon Brothers to compensate the concession holders came a few weeks before the High Court hearing was scheduled and nearly four years after the closure of Clery’s. The executives of Gordon Brothers claimed that Clery’s was bought as a “going concern.” Not all the concessionaires have accepted the offer, but most have.
Needless to say, nothing illegal was done by anyone under the rules at present obtaining for business transactions like this.
Last year the Clery’s building was sold to Press Up Entertainment Group for €63 million—in other words, a gross profit of €34 million on the original purchase. When you factor in the payments to the workers, accountants and lawyers it would still leave a sizeable profit. As mentioned in the original article, the object was to crystallise the debt in one company and the value in the other. The building has the accrued value, and this has now been released. All perfectly legal, of course.
It demonstrates how capitalists can accrue even more capital from a company in debt, and to the detriment of the workers who were actually creating the value. In effect, the building itself has become a commodity for sale. The new owner of Clery’s will develop it as a hotel, restaurants, offices, and some retail units.
Robbie Hughes of Link Group, which manages non-performing loans for Cerberus Capital Management, NAMA, and other vulture funds, stated: “internally we call [Ireland] the gift that keeps on giving.” Link is an Australian company with a global reach. It has detected an opportunity in Ireland for getting good returns for its clients.
The Irish banks have to reduce the non-performing loans on their books to 5 per cent. There are more loans to be sold to reach the 5 per cent target. These loans are mainly buy-to-let loans that became unviable. Banks like Ulster Bank and AIB sold their non-performing loans in order to clean up their books in much the same way that Clery’s was divided into an operating company with debt and the property company with no debt. Link Group steps in and manages these distressed loans by packaging them, selling them on, or holding them until they are profitable again. It has obviously identified a lucrative opportunity in Ireland, as more that 60 per cent of its income is generated here.
Both the Clery’s case and Link Group illustrate something Marx identified in volume 3 of Capital concerning the metamorphosis of commodities. Profits are made not by manufacturing anything and creating added value. Bank deposit interest is nil, or even minus, so capitalists need other vehicles to grow capital. Marx pointed out: “The owner of money who wants to valorize this as interest-bearing capital parts with it to someone else, puts it into circulation, makes it into a commodity as capital.”
Now the capitalist buys a property and effectively releases capital to the buyer that has the potential to create surplus value. The commodity that has been bought, whether a building or a non-performing loan, will eventually be sold, so it metamorphoses back into money, replacing the original money with a surplus value. In effect, property transactions by the vulture funds, whether for commercial property or sub-prime mortgages, are a method of getting interest on capital.