The mysterious structure of Retail Adventures' collapse explained – and why SMEs should definitely care
The curious structure put in place after Retail Adventures' collapse has been one of the most interesting developments of the company's ongoing financial turmoil, with the administrators placing the company in a new holding group and then operating through a type of licensing scheme.
Creditors have attacked the scheme for possibly negating their return.
But now, the administrators have come out in full force defending their decisions, saying it gives the business more of a fighting chance.
Administration experts say this method should be of particular interest to SMEs – as it will start happening a lot more.
"This is a sign of the times," Vantage chief executive and turnaround specialist Michael Fingland told SmartCompany this morning.
"It's certainly happening more in the SME space, and it's definitely going to happen more often."
After Retail Adventures collapsed into administration last week, Deloitte partner Vaughan Strawbridge announced a new holding company had been put together. This holding company would license the Retail Adventures name and associated brands from the administrators so it could continue trading.
Creditors have questioned the scheme, saying they are unsure how they'll get a return from the new structure. But today, Strawbridge has told The Australian Financial Review the decision was a prudent one.
"We would not have had sufficient funding to continue to trade the business whilst we ran through a sale of business program ," Strawbridge said. "That's due to the funding requirements and the need to purchase stock and place purchase orders in order to guarantee continued supply of stock."
Fingland says the licensing scheme is an alternative to traditional voluntary administration programs, which he claims are growing less and less effective.
"The voluntary administrator has an obligation to do what's best in the interests of creditors, so they're reluctant to sell it immediately because it could be argued they haven't marketed the business long enough."
"And given the dire state of retail and the lack of equity, directors – and Deloitte – would feel strongly about selling, given this is difficult environment."
Fingland points to the fact Dick Smith was on the market for such a long time. A prolonged sale process sucks out all the value, he argues.
A licensing structure allows the company to continue trading while at the same time the management or other parties can consider coming up with a scheme of their own to put the company back in business.
"It's just the reality that a voluntary administration scheme doesn't work for many of these companies," he says.
"The stigma against administration is so strong that a lot of suppliers just won't deal with a company in that state, regardless of who owns it. This allows it to continue trading in a different way."
JP Downey and Co principal Jim Downey also told SmartCompany the decision is a good one for short-term readjustments.
"It's a better option to have a standstill while you go through a formal process of looking for a purchaser."
The new buyer could end up being Jan Cameron herself, Fingland says, but it could just as well be anyone else. But making sure the company operates through a licensing scheme ensures confidence remains among suppliers and employees remain confident about their jobs.
SMEs need to pay attention, he argues, and this will become much more common among smaller businesses.
"It's going to be used more, and especially in the SME space."