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Company's once high spirits sink

SOLID XS vodka, once a premium brand, imploded late last year. Although the company has yet to be formally wound up, cash flow dried up last summer. Aubrey Buckingham investigates.

As the economy takes a mighty stumble, some businesses unfortunately reach the end of their tether when it no longer remains feasible to remain in operation. Sadly, it is often the rank and file who take the real brunt of the failures, and there are currently not enough measures to protect their interests.

The case of Solid XS vodka has been widely discussed since the once prominent brand imploded late last year. While the investors have yet to formally announce the closure of the company, cash flow dried up last summer and the vast majority of staff was laid off in September.

This was a dramatic change in fortunes for the premium spirits brand, which had been touted as a local success with its ready access to local bars and nightclubs.

Launched in 2005, the Polish-distilled brand sought visibility by sponsoring performances from artists such as British DJ Pete Tong and Canadian singer Avril Lavigne, among others.

The company was set up by British citizen Oladipo Delano, better known to the expat community as "Ladi." The 27-year-old was lauded as a "successful serial entrepreneur," and he and his former marketing director Matt Reid even branched into launching the ill-fated Xintiandi dining and entertainment venue, The Collection.

When the premises were first downsized then suddenly closed for lengthy refurbishment and the planned Bund expansion looked dead in the water, suspicions were raised that not all was firm in the Solid camp. Marketing Director Julia Ji, who took over from Reid in February 2008, spoke of unpaid expenses and marketing budgets coming out of employees' own pockets.

"Not every staff member could sense that," says the Shanghai native. "Whenever something had to be claimed, it would always take a long time (to be reimbursed)."

According to Ji, who had worked in other beverage companies such as Diageo, she coughed up about 5,000 yuan (US$732) for a DJ in June, and 14,000 yuan to fly another DJ in later. In the first instance she was repaid promptly, but to date she awaits the second, larger payment. Ji also says that she, along with other colleagues, are owed wages for July and August.

By this time, creditors were pushing to be paid and in August, staff were instructed to work from home. On September 2, HR Manager Shelly Zhu wrote an e-mail informing the majority of the 70 employees that they were being laid off, and, in addition to the salaries owed, Solid would compensate employees according to local labor law by September 24.

Solid's managing director David Ghani laments the demise of the company on his watch, and believes that while expansion plans (offices were opened in Beijing, Dalian, Guangzhou and Chengdu) were ambitious, the situation could have swung the other way if the economy had not taken a turn for the worse.

"There was an offer on the table from someone who wanted to buy the company, and we needed to reach a certain volume by a certain time. Then the financial crisis hit and the investors didn't want to go ahead with it." Ghani was unable to identify the potential buyers other than said they were venture capitalists out of Hong Kong.

The Englishman, who has his own liquor distribution company, states that expenses were always handled sporadically at Solid, suggesting that cash flow was always an issue with the company.

On February 17, the Pudong People's Court (where Solid is registered) upheld the Solid employees' case for arbitration and decreed that in addition to salaries owed in July and August, employees were also to be compensated for the month of September. Expenses, however, were not supported by the court.

Given that the investors are no longer based here and the Solid accounts are dry, it is unlikely that these employees are likely to be compensated.

Attorney Spring Liu points out these cases are increasingly common in these tumultuous economic times. He has previously published case studies of South Korean factories in Qingdao closing in the dead of night and leaving employees in the lurch.

In such cases, while the local labor courts may rule in their favor, employees are unable to locate the investors who are based overseas.

Should companies be liquidated legitimately, employees can then seek compensation from the parent company based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, which came into force in 1959 and was ratified by China in 1987. This was obviously not the case.

Liu, who works at Guangsheng & Partners, believes authorities should set up more stringent checks into credit ratings before allowing the establishment of companies.

For example, someone who has shut his business on the sly in another province can still start up a new venture here in Shanghai. A new bureau, working in tandem with the existing public departments, would ensure that only businesses with respectable practices would be allowed to operate.

While it is hoped such cases will not be common in the food and beverage industry, it is unlikely to be the last of its ilk. As Solid's Ghani says of his former employer Ladi Delano: "He's an entrepreneur. He knows how to get people to part with their money - he'll always be able to find financial backing."


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