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Cape Town - Empowerment giant Brimstone Investment Corporation has applied to place its clothing brands subsidiary, Fifth Element, into liquidation.
In a statement released on Tuesday evening, Brimstone confirmed Fifth Element Marketing (Pty) Ltd - the clothing design and wholesale business which owns fashion and sportswear supplier Canterbury International SA (Pty) Ltd and surf wear and fashion brand, O'Neill SA.
Canterbury International owns the licensing rights to manufacture Canterbury sportswear, including the Springbok rugby jersey and jerseys for a variety of Super 14 and provincial rugby teams.
The liquidation of Fifth Element is a major setback for Brimstone, which was looking to build a fashion brand house around its 100% clothing-manufacturing subsidiary House of Monatic.
Brimstone initially acquired a 51% stake in Fifth Element in 2006 and recently upped its stake to 100%.
No alternative
Brimstone said evidence of possible financial irregularities perpetrated in the business were recently uncovered during an ongoing co-operative investigation by House of Monatic and the South African Revenue Services (SARS).
House of Monatic CEO Iqbal Khan said these irregularities could have been the cause of the current financial position in Fifth Element's liabilities exceeded its assets.
"House of Monatic has therefore been left with no alternative but to liquidate the entities concerned."
Khan said the findings of House of Monatic's preliminary investigations were of such a serious nature that the company needed to act firmly and responsibly.
Fifth Element, O'Neill and Canterbury collectively generated turnover of around R100m.
Khan said it was difficult to quantify the irregularities at the moment. "We have appointed a firm of forensic attorneys to pinpoint exactly where the possible irregularities lie in the businesses. It should not be too long before their preliminary findings are released."
Khan believed the wind down of the business would not have a material financial impact on the Brimstone balance sheet.
"Of concern, though, to the holding company are the impact and potential job losses to employees of Fifth Element and its subsidiaries. House of Monatic is actively seeking ways in which these jobs could potentially be saved."
Regarding the manufacturing of the Canterbury rugby jerseys, Khan said the position had been explained to Canterbury International.
"They will be holding a board meeting tomorrow, and then gives us their decision. They could opt to give the manufacturing licence to another manufacturer; or offer it to us again."
He stressed House of Monatic's day-to-day operations would not be affected by developments.
"Our manufacturing arm in Parow, that was being set up as a dedicated sportswear manufacturer - will lose a key customer though."
Khan said although the action would impact Brimstone's aspirations to build a fashion brand-house the company would refocus its energies on building the capabilities and growing the brands within House of Monatic.
"It has not diminished our mission of realising our values of being profitable, empowering and to have a positive social impact over the longer-term."
- Fin24.com
