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French law to notify the French authorities of the company's
financial situation, which could result in a judicial declaration
of insolvency and involuntary liquidation proceedings. They
recommended that WFGI capitalize the intercompany account in
order to cure the deficit.
Sales recovered in the next fiscal year, exceeding the level
attained in FY 1980. Nevertheless, the French subsidiary
reported another large loss. The consolidated financial
statements of the group for FY 1981 through FY 1983 attributed
40 percent of the cumulative losses sustained by the French
subsidiary during this period to losses in currency exchange
transactions caused by the appreciation of the U.S. dollar
against the franc.
A series of events in FY 1984 compounded the French
subsidiary's problems. For many years the company's accounts at
Banque de la Cite had been continuously overdrawn. The bank had
honored overdrafts, charging interest on the funds beginning in
1982. In February 1984 the French subsidiary was asked to
transfer a Rouault painting from its collection to the bank as
security. In March the bank announced that it would no longer
honor checks drawn on the subsidiary's accounts without a
guarantee from the parent. WFGI acceded to the bank's demand,
arranging for its own bank in the United States to issue a letter
of credit on behalf of the French subsidiary.
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Last modified: May 25, 2011