retail news in context, analysis with attitude

There is a report on nasdaq.com saying that as Tesco-owned Fresh & Easy Neighborhood Markets was losing $22 million a month and facing bankruptcy, Tesco pulled close to $214 million out of the venture. While the actions are not described as being illegal, experts say that they could make it easier for outside creditors that did not get paid because of the bankruptcy to sue to challenge the sale of Fresh & Easy's business to Yucaipa Cos.

According to the story, "Tesco has said in court documents that it put more than $3 billion in debt and equity into the venture, an effort to break into the competitive market of selling fresh food in California, Nevada and Arizona just as those areas were being slammed by the recession … Court papers say the bulk of the insider payment, nearly $189 million, was to repay debt Fresh & Easy owed its parent. Another $10 million went from Fresh & Easy to cover Tesco payroll costs in the U.K. and Bangalore, India.

"An additional $15 million in insider cash was labeled simply "all other payments." It is money Fresh & Easy sent home to the U.K. while shuttering stores in the recession-hit Western states where it was attempting to establish itself."

The story goes on to say that "Tesco's hefty insider take--the amount is the equivalent of 19% of Fresh & Easy's net revenues for the year ended February 2013--could be enough to make it worthwhile for unhappy creditors to probe for pressure points.

"While there's no law against parent companies, or any other insider, collecting what they are owed even when a business is in trouble, anything from technical glitches in loan documents to evidence of undue pressure on a troubled business can set off a clamor among creditors to sue."
KC's View:
I'll accept the idea that this money drain was perfectly legal, but it does seem sort of sleazy … especially because it appears that when it came to recouping losses, Tesco wanted to cover its own rear end as much as possible while leaving its creditors exposed.

I'm not a litigious person, but I think that these creditors should sue. Seems to me that if I sign a contract with a company, I have a responsibility to live up to that contract before I take care of myself. Isn't that the definition of ethical behavior?

Seems like a good time to once again post the passage from Robert Bolt's "A Man for All Seasons," in which Sir Thomas More, unwilling to compromise his core values, says:

“If we lived in a State where virtue was profitable, common sense would make us good, and greed would make us saintly. And we'd live like animals or angels in the happy land that needs no heroes. But since in fact we see that avarice, anger, envy, pride, sloth, lust and stupidity commonly profit far beyond humility, chastity, fortitude, justice and thought, and have to choose, to be human at all, why then perhaps we must stand fast a little, even at the risk of being heroes.”

For his trouble, More ended up in the Tower of London and eventually was beheaded. Tesco just wants to revive its fiscal prospects.