The Bottom Line:
As the bank-appointed receiver in a tenuous, cross-border situation involving a 20-year old furniture manufacturer, Stapleton Group successfully recovered $12 million in debt by:
- Cleansing title on the machinery and equipment through a complex negotiation with a Mexican labor union and Mexican tax authority;
- Working closely with local counsel, a local broker and other parties in Mexico;
- Negotiating the sale of machinery and equipment and leasing a company-owned factory to a third-party furniture manufacturer; and
- Consolidating furniture and negotiating its bulk sale to 3 different buyers.
The Business Issue:
The high-end furniture company manufactured all of its products in three factories in Tijuana, Mexico and stored finished goods in a leased facility in Otay Mesa, CA. The expansion of China’s lower-cost furniture manufacturing somewhat impacted the company; the housing crash of 2008 severely-affected sales and cash flow.
Genesis of Stapleton’s Engagement:
After failed plans to restructure or liquidate the company, the bank had lost confidence in its borrower and was concerned about its large payroll obligations. Stapleton was appointed receiver and immediately reduced payroll and commenced a liquidation.
Obstacles and Stapleton’s Solutions:
- On the eve of Stapleton’s appointment as receiver, the company failed to make payroll in Mexico, so the labor union seized the property (factories, machinery, equipment and inventory) and started to strike. In Mexico, the union representing wages has the primary lien, senior to secured lenders. The bank funded payroll, ending the union’s strike, but the union would not release the property, which was the bank’s collateral.
- Stapleton negotiated with the Mexican labor union and Mexican tax authority to release assets, resolve legal issues to cleanse title, identify buyers and collect Mexican accounts receivable.
- Stapleton and its local broker successfully sold equipment valued at $1 million to the union for $300,000.
- Stapleton used cash generated through accounts receivables collections to negotiate a settlement with the union, thus cleansing title so the assets could be sold.
- The majority of the company’s assets, including 3 factories, were in Tijuana, Mexico, which was in a deep recession.
- Stapleton aggressively managed the properties, hiring security for the vacant buildings and maintaining a local presence to pay utilities, oversee local Mexican brokers and vendors and resolve title issues.
- Stapleton worked with counsel to clear liens and close the property sales.
- The business’s substantial inventory was located in Mexico and a leased U.S. warehouse.
- Stapleton liquidated the U.S.-based inventory quickly to eliminate the high rent expense of the warehouse.
- Stapleton sold the Mexican-based inventory to a U.S. buyer, facilitating the successful close by first cleansing liens on the furniture then clearing customs.
- Hacienda (Mexican IRS) had liens on the factories and equipment (junior to the labor union) that had to be resolved before the factories could be sold.
- Stapleton created and implemented a strategy to remove Hacienda’s lien
- Stapleton worked closely with the bank’s local Mexican counsel, who was instrumental in negotiations with Hacienda.