A falling out between Dick Smith’s bankers and senior management at the mass retailer was fatal, an administrators report into the Companies collapse is set to report.
The administrators from McGrath Nicol believe that the relationship between the banking syndicate, led by National Australia Bank and HSBC was so toxic that the bankers simply pulled the plug on the mass retailer, despite evidence revealing that the Company could have survived had an injection of capital been injected into the ailing business.
Nick Aboud who was struggling to hold onto senior management and buyers at the mass retailer was one of the key negotiators with the banks along with Chairman Rob Murray.
According to Fairfax Media Dick Smith’s relationship with National Australia Bank and HSBC was barely six months old when the retailer announced a $60 million inventory write-down in late November and revealed it was “unable to re-affirm the profit guidance previously provided”.
Dick Smith management who have been accused of concealing trading and sales information from suppliers failed to alert the banks about the impairment charge with one insider claiming that “this was a fatal mistake”.
Desperate to raise cash the management team is believed to have approached both Anchorage Capital the Company that initially floated Dick Smith raising over $500M dollars along with overseas investors.
Fairfax Media claim that the partnership with the banks who in December had moved their own management team into Dick Smith head office was further strained by Dick Smith’s repayment to Macquarie in December on a $30M unsecured loan provided to cover the upfront payment for Apple stock after the tech giant withdrew supplier credit in about October.
When the Company finally collapsed and Ferrier Hodgson was appointed as receivers it was revealed that the Company had been unprofitable for months and that Dick Smith owed the Bank and suppliers over $400M.
One source told Fairfax that the banks “hated surprises” and NAB and HSBC were hit with several in quick succession from Dick Smith.
He said the bank was “shocked” by the stock write-off and the payment to Macquarie further inflamed the situation.
Dick Smith’s relationship with its banks is believed to have played a significant role in the collapse of the business.
“NAB was annoyed Dick Smith paid off an unsecured lender [Macquarie] ahead of reducing its facility with it, a secured lender,” he said.
The Federal Court has granted Dick Smith’s administrators McGrath Nicol a six-month extension to the schedule for its second creditors meeting, which means it won’t be held before August 9.
The receiver’s first report on Dick Smith’s New Zealand operation has identified a $NZ98 million shortfall in the funds available for priority creditors, and Ferrier Hodgson said it could not estimate how much of the $NZ32.8 million in stock would be recovered through its current fire sale through the network of 62 stores.