Dick Smith is no more after creditors yesterday voted to wind up the electronics retailer in a bid to recoup some of the $260 million in losses. But getting a decent return for creditors is unlikely to happen and the returns will be tiny.
Administrator McGrathNicol will now become liquidator of 10 companies within the Dick Smith group after creditors voted in favour of liquidation at a low-key meeting in central Sydney yesterday.
Dick Smith creditors face a shortfall of between $240 million to $275 million, administrator Joe Hayes told the meeting.
The report estimated that at best, $101.6 million can be recovered from the sale of stock and other assets.
Secured creditors such as banks (NAB and HSBC) are expected to receive a partial return on their exposure, while unsecured creditors and shareholders are not expected to get any money back.
Employee entitlements have been met in full.
McGrathNicol, which was appointed administrator on January 4, will now focus on the task of recovering money for creditors but getting money back from corporate insiders will be tough, unless breaches of the law can be proved.
Mr Hayes faced only one question, on whether McGrathNicol had looked into the assets of the directors of Dick Smith.
He said receivers, who are working on behalf of Dick Smith’s lenders, had looked at the directors and there were questions to be answered (which got publicity in the Financial Review several weeks ago).
But most of the meeting was taken up by Mr Hayes explaining the findings of McGrathNicol’s recently released report which attempted to explain the collapse of Dick Smith.
The report explained that Dick Smith’s demise came as management focused on store expansion and revenue at the expense of sustainable growth. That saw the company make purchasing decisions based on rebates paid by suppliers instead of actual customer demand.
And rebates were paid for marketing of the product and would often be booked as a profit in one quarter, but the stock would later have to be written off after it failed to sell.
This caused a build-up of stock and by October 2015, Dick Smith had $180 million in “active” inventory, which led to a major financial write down. By late December of that year the company was failing and in early January of this year, it put up the white flag and called in administrators.
