Masters partners Woolworths and Lowe’s share history of mistrust

Masters partners Woolworths and Lowe’s have been at loggerheads since last year over the chain’s solvency.

The bitter court battle between Australian retailer Woolworths and US hardware giant Lowe’s as they seek to exit the failed Masters joint venture has revealed that the pair have been at loggerheads since last year amid questions about its solvency.

The pair have been locked in legal combat in the Federal Court in Sydney as Woolworths tries to shunt the dispute into arbitration behind closed doors.

The Australian revealed details yesterday of Woolworths’ alleged “Game Plan”, running to a strict timetable, to get out of the disastrous joint venture.

This allegedly included developing a “Plan B straw man” and having leading insolvency professional Mark Korda, of KordaMentha, raise the spectre of jail time for insolvent trading with Lowe’s representatives on the joint venture’s board.

Further documents filed in the case have shed light on the depth of mistrust between the pair and the collapse of their relationship in the final month of the venture as they battled over Woolworths’ plans to keep 13 Masters sites and its alleged attempts to use the threat of insolvency to gain the consent of Lowe’s for its plans.

An affidavit filed by Lowe’s vice president Robert “Trey” O’Neale III provides a detailed timeline of the US company’s allegations.

In it, he alleges Woolworths provided its representatives on the board of joint venture vehicle Hydrox Holdings with a “letter of comfort” protecting them if the company became insolvent — but did not send the letter to the nominee directors of Lowe’s.

Mr O’Neale claimed the alternate nominee director for Lowe’s, Anthony Bancroft, emailed Woolworths nominees Richard Dammery — who chaired Hydrox — and Danny Davies on ­August 23 asking whether there was any solvency advice that ­directors were able to rely upon.

That evening, Mr Korda sent an email to Mr Bancroft that ­revealed the existence of the ­comfort letter.

“The email makes reference to the fact that certain directors of Hydrox (being the Woolworths nominee directors) have received a letter of comfort from Woolworths (comfort letter) and states that the Hydrox companies will not be insolvent so long as the comfort letter has not been terminated,” Mr O’Neale said.

This was allegedly in keeping with plans by Woolworths to get Lowe’s to agree to its terms in winding up the venture rather than call in administrators.

Mr O’Neale claimed that Mr Bancroft subsequently asked Mr Korda for a copy of the letter during a Hydrox board meeting on August 24. But he claimed that the Lowe’s nominee directors had not been provided with a copy of the letter by the time he swore his affidavit on August 28.

Lowe’s told the court that it held deep concerns about the carving off of 13 key sites from the sale portfolio, which Woolworths has retained as it seeks to avoid its competitors gaining ­access to them.

Lowe’s directors expressed concern to Woolworths directors about the lack of information on the sale proposals, which it claimed was “high level and ­incomplete in many material ­respects”.

The Lowe’s directors wanted information about the sale of the Masters freehold properties, particularly the sites that became ­“excluded sites” and the proposal that Woolworths purchase them in related party transactions. They also wanted more details about the price Woolworths paid for the sites and the basis on which they were valued.