Woolworths has not authority to wind up Masters: Lowe’s

US retailer Lowe’s says Woolworths has no authority to wind up their failed Masters joint venture without its consent.

US retail giant Lowe’s says Woolworths has no legal authority to wind up their failed Masters joint venture without its consent.

Lowe’s and Woolworths went head to head in the Federal Court yesterday as they argued about how the hardware chain, which operates under the Masters joint venture vehicle Hydrox Holdings, should be wound up. The joint venture was formed in 2009 in an attempt to rival the dominant Bunnings chain owned by Woolworths’ rival, Wesfarmers.

But the venture has been a drag on Woolworths’ earnings, and the company announced last week it would shut the stores by December 11, a day before it posted a $1.2 billion full-year loss driven by heavy writedowns on its disastrous foray into hardware.

Lowe’s defended its right to have a say in the winding up of the hardware chain, saying it held “deep concerns” over how Woolworths handled the aftermath of the venture’s demise and its subsequent attempts to sell off assets.

Lowe’s counsel Noel Hutley argued that despite Lowe’s agreement to a sell its 33 per cent stake in Hydrox in January this year, the company should have retained representation on the joint venture’s board and had a say in the sale of any remaining assets.

“The joint venture agreement clearly contemplated that pending the outcome of any buyout, we would remain on the board and have all the powers that flow from that,” Mr Hutley said.

“The company (Hydrox) is ­entering into arrangements for which there is no legal authority.”

But counsel for Woolworths, David Thomas, said the dispute between the two companies was only related to the sale value of the Lowe’s stake in Hydrox. He ­denied any breach of contract.

“The only matter in dispute is the issue of value,” he said.

Mr Hutley said Lowe’s ­retained an economic interest in the management of the joint ­venture.

“To say that we have no economic interest in the outcome is within our respective submission flawed,” he said.

The tensions between Lowe’s and Woolworths could cast fresh doubts about how an equitable division of assets could be split ­between the two companies.

Woolworths has planned a $1.5bn fire sale of Masters’ assets, including the sale of 82 Masters properties to a consortium of ­investors for $750 million, disposing of $500m of inventory and selling its Home Timber & Hardware arm to Metcash for $165m.

Woolworths is seeking the ­appointment of an independent arbitrator to resolve the legal dispute but Lowe’s wants an independent liquidator to recoup its investment in the joint venture.

Judge Lindsay Foster ordered the two parties to return to court for the ­interlocutory hearing on ­September 15.