Alarm bells went off for auditors in March last year when Retail Adventures recorded a $55 million loss

Financial reports filed by Retail Adventures last week reveal the discount retail chain was already in major trouble in March last year, when it reported a loss of $55.076 million for its first 16 months of operation.

Retail Adventures, which was owned by Kathmandu founder Jan Cameron, went into administration in October this year, leaving many creditors fuming as they were owed $96 million.

Two sets of “special purpose” financial reports were filed by the beleaguered company with the regulator last week despite Retail Adventures previously not being considered a “reporting entity”.

The Australian reported documents lodged with the Australian Securities and Investment Commission revealed Retail Adventures had revenues of $985 million for the first 16 months of its existence and employed 7742 people.

However, by the end of July 2010 Retail Adventures had lost $55.1 million and its auditors at the time, KPMG, noted “these conditions … indicate the existence of a material uncertainty which casts significant doubt about the company’s ability to continue as a going concern without the ongoing financial support of the company’s ultimate parent entity.”

The next year Retail Adventures recorded a loss of $73.6 million and KPMG resigned as auditor.

Colin Porter, managing director of Creditor Watch, told SmartCompany as Retail Adventures was not a reporting entity it was not obliged to disclose profits or losses. However, he says given the size of the business it is “understandable” that ASIC wants to look at it to make sure they have been conducting their business by the regulations.

Porter says being non-reporting leaves creditors and suppliers “trading blind with no knowledge of the risks”.

“But secured creditors who are the banks are able to monitor their exposure on a daily basis. The secured creditors really do call the shots at the expense of the smaller suppliers,” he says.

“The key is that there needs to be greater communication between suppliers, it sounds like there were lots of rumours but little to no communication between suppliers, had there been more communication there would have been more understanding of their risks.”

Porter says in this situation the banks will most likely recoup their losses and the administrators will do extremely well. But the rest of the Australian businesses who supplied goods are likely to be left with the option of cutting their losses and deciding whether to trade with the new owners.

He says it is would be interesting to know what Retail Adventures’ directors knew about the company’s financial situation as two directors resigned in July and September this year.

“It’s often when a company can see that time is running out the directors reduce their own risk and cease being an officeholder of the company,” Porter says.

Retail Adventures’ future continues to be up in the air, with administrators Deloitte putting out a call for buyers last month.

SmartCompany contacted Deloitte and KPMG for comment on this story but both firms declined to comment.

 

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