BERLIN — At its 25th annual shareholders’ meeting in Munich Tuesday, Escada chief executive Bruno Sälzer said insolvency is the “only alternative” to the financial restructuring plan the company revealed late last week.

This story first appeared in the April 29, 2009 issue of WWD. Subscribe Today.

The embattled fashion house is proposing a capital increase to raise the 30 million euros, or $39 million, needed to stay liquid during the current fiscal year. Sälzer said the restructuring and recapitalization plan must be completed by July. It also includes the restructuring of a 200 million euro, or $260 million, bond due in 2012, and calls for creditors to take a cut in repayment as well as extending the bond’s term. Furthermore, Escada is in negotiations with banks on existing and future credit lines.

Escada’s plans to sell the Primera Group (encompassing Laurèl, Apriori, Biba and Cavita) are also well under way, though Sälzer would not give further details.

He told shareholders that all groups — shareholders, creditors and Escada’s house bank HypoVereinsbank — must cooperate “or Escada will not survive.” While observers said it is likely the plan will be agreed to, since the majority of shares are held by the Herz family and Rustam Aksenenko,  there were skeptical voices to be heard.

“Escada is critically ill. Any number of therapies have done little or no good till now,” commented Verena Brendel from the DSW, the oldest and largest German association of private investors. With shares having fallen almost 90 percent in value over the last 52-week period, “shareholders are faced with ruin,” said Christop Öfele of the investors group SdK.

However, an Escada spokesman noted, there wasn’t so much resistance to be sensed as “the fact that people are grasping, for the first time, just how serious the situation is.”

Sälzer, who was called in to turn the company around last July, didn’t mince words. The company posted a 70 million euro, or $91 million, loss in fiscal 2007-08 and the negative trend continued in the first quarter ended Oct. 31. “The fully unacceptable business results are not only the fault of the market environment, which for the first time became clearly more difficult for upscale fashion at the end of 2008. But they are first and foremost the result of Escada’s too long tolerated deficits in fashion statement, in the professional management of the fashion market and in the organizational structures.”

Noting the management changes would not affect results for at least a year, Sälzer said group sales would continue to decrease within a high-single-digit to low-double-digit percentage range in the current fiscal year.

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