Sparks Electrical News June 2019

CONTRACTORS’ CORNER

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THE FALL OF JDL ELECTRIC: FROM THE CEO T he liquidation of JDL Electric earlier this year caused its staff and creditors unintentional suffering. On February 4 th 2019, employees were informed that the company was being closed. Within 24 hours, one of the country’s largest banks had filed a High Court order to liquidate JDL Electric, seized all assets and stock, and barricaded all operations. But how did this happen? CEO, Lee Kritzinger revealed all to Sparks Electrical News, without prejudice, in an open letter to the industry:

they would consider our request but needed further securities. The directors signed sureties and cross company guarantees. Notarial bonds were drawn up at our cost. After this,the bank declined the additional finance and instead demanded we reduce the existing limit by R30k per day. At the beginning of February 2019, high court orders were issued within 24 hours of a rejected turnaround strategy presented at our investment bankers’ offices. The bank instructed us to voluntarily liquidate or, informed us repeatedly we would see the “other side of the bank”. We asked for the opportunity to sell off the stock for cash to give the creditors as much as possible back. The request was accepted, and rejected the following day. The bank was nervous that our landlords also had a claim to everything on the premises. They wanted to “perfect their loans”. On Monday the 4 th February 2019, the companies were chained and

locked and auctioneers began loading stock and assets. No record was made of what was being removed and I witnessed fragile stock being damaged carelessly in the process. This was one of the most emotional days of my life, witnessing 38 combined years of mine and my father’s hard work, destroyed before my eyes. I sincerely apologise to all the families who suffered through this catastrophe, including my own whose lives have been turned upside down. I have found jobs for many of my staff and I have met with many suppliers to apologise for what happened. JDL gave its suppliers decades of continuous support and many of them received millions annually from the JDL Group, whose gross income was around R250m per annum.

“Let me begin at the end. 120 families lost their sources of income. Directors are receiving summons’, because they signed personal sureties. My home, vehicles and assets have all been auctioned. I cannot be a director of any company for many years to come. Why? JDL Electric applied for additional finance for our group of companies in order to get up to date with our suppliers. Our investment bankers said that

The 10 nails in the JDL coffin

1. Phones: Our call centre, traditionally respon- sible for two thirds of our turnover, only had two lines available from September 2018, compared to the norm of 24. We were losing an average of 200 incoming calls per day. 2. IT: Our ERP system server sat in a secure data centre that only allows access to “white listed” IP addresses. We were trying to op- erate 40 phones and 50 computers off an LTE router with a sim card while waiting for a fibre connection deadline that was pushed back weekly. Every time the signal dropped, a new static IP address would automatically be issued, and our data centre access would be blocked for 48 hours while the new details were submitted for access. Our landlord’s ‘preferred’ internet solution provider could not adhere to its commitments, due to an In- ternational merger and a five-month backlog at its sites. Contracts were signed at the end of September 2018 and a three to four week turnaround time quoted. Five months later, after a 50% drop in sales and a R6m loss in- curred, a belated personal apology was sent by the CEO. Still no fibre. 3. Drugs/theft: 10% of our staff complement tested positive for hard drugs. These habits and associated behaviours were fed by stock theft. It has come to my attention that several staff members had syndicates within the organisa- tion. The January 2019 stock take revealed that there was over R2.5m worth of missing stock, since the previous check in September 2018. Suspicious activity was reported in 2018 to a director but this information was never shared in any subsequent board meeting. 4. Bad debt: R5m worth of bad debt had to be written off from people I trusted and supplied without credit insurance cover. 5. Buyouts: Over R1.3m worth of special buyout stock was paid for and mostly hidden away in our stores. Staff and/or clients ordering incorrectly, then not bothering to send the items back for credit. 6. Dead stock: Uncontrolled procurement. R6m worth of stock that had zero movement for six months or more, purchased, paid for and gathering dust on the shelves. In 2017, we also wrote off R2m of dead stock. 7. R7m of upfront COD payments: Made to one of our regular cable suppliers for three months’ worth of stock. The supplier deliv- ered R2m worth of stock and then declared it could not deliver anything further, owing to lack of funds or stock. 8. Interest: A loan was taken for trade finance and funds flowed out to the group of compa- nies. The interest servicing this debt was over R500k per month. 9. Insurance cover: We had R240k worth of fraudulent card transactions that were re- versed four months later. Our provider refused to accept accountability and insurance did not cover fraud. The R2.5m of missing stock would also not be covered, since our fidelity cover was only R150k. We were paying R120k a month for credit and short-term insurance that we could not use, due to certain T&Cs. 10. Moonlighting: Some staff members were running their own companies on the side, whilst being paid a salary by JDL. Some were supplying JDL clients directly. CONTINUED ON PAGE 6

SPARKS ELECTRICAL NEWS

JUNE 2019