Tesco Czech expansion hit by debt ruling
Czech courts which appears to give a Czech businessman the right to
seize its assets in payment of an alleged debt.
Tesco, the British retail group, has said it will appeal against a decision by a court in Prague which could seriously hamper its development there.
The ruling concerns Tesco's attempts to block moves by businessman Jiri Malik to seize its assets in lieu of an alleged debt of CK95 million, which Malik claims is still owed to him by the retailer.
Malik's company, MIC, sold land on the outskirts of Prague to Tesco in 1998, but claims that the company never fully paid for it. Malik claims that the debt is now nearer CK235 million, given interest, expenses and other factors.
Back in March, Malik attempted to seize goods from Tesco's Prague store in lieu of payment of the debt, saying that an earlier court decision had given him this right. Tesco won an injunction against this move, claiming that the court had never given Malik this right and that it had in fact ruled that neither party owed anything to the other.
But Malik said that the latest ruling effectively overturned that injunction - again giving him the right to seize Tesco's assets.
Tesco called the decision 'incomprehensible' and said it would appeal. It added that the earlier decision in the arbitration courts in no way gave Malik the right to attempt to seize goods from Tesco's stores, and branded the move as "unlawful".
The alleged debt relates to the acquisition of 80 hectares of land which Tesco bought from MIC with a view to building a new store there. According to Malik, Tesco refused to pay for the part of the land for which planning permission had been refused, even though the British group knew from the start that it would not be allowed to build there.
According to a report in the Prague Post, Malik said that Tesco's apparent willingness to acquire all the land, even though some of it was designated as agricultural and could not be built on, was what allowed it to beat French rival Carrefour in a bidding battle.
The property developer was originally successful in his bid to wring the full price out of Tesco, with a ruling in the arbitration court in November 2000. But Tesco refused to pay, setting off the lengthy, and increasingly bitter, legal battle.
Tesco has 17 stores in the Czech Republic - one of its smaller eastern European businesses - but will certainly hope for a swift resolution of the dispute in order to allow it to grow its operations there further as the country joins the EU next year. In comparison, French retailer Carrefour has eight stores there, while Dutch group Ahold has over 200.
