Best & Less Now Caught Up In Allegro Funds Harris Scarfe Suppliers Row
Allegro Funds’ plan to float the $400 million Best & Less retail group that is run by Rod Orrick who walked out on the management team at Dick Smith, telling others to follow him out the door because of dodgy dealings by management, is now involved in a new scrap after they were slammed over their treatment of suppliers involved in the collapse of Harris Scarfe.
According to the Australian Financial Review Allegro stands to make windfall profits if the initial public offer for Best & Less goes ahead, while Harris Scarfe’s unsecured creditors, who are owed between $146 million and $236 million, are still waiting for a return, 13 months after it collapsed.
Several suppliers have written to the Australian Securities and Investment Commission calling for an inquiry into the circumstances behind Harris Scarfe’s collapse and Allegro’s ability to legally walk off with the $70 million security and the cash left in the Company.
At one stage suppliers were being told by the new Harris Scarfe owners Spotlight Group that if they wanted to continue supplying the South Australian retailer, they had to take a further cut to get their products ranged.
Allegro put the loss-making Harris Scarfe into administration and receivership in December 2019 pocketing millions for a select group of people involved in the questionable transaction.
Creditors of Harris Scarfe are still waiting for a dividend and even if Best & Less is sold, they stand little chance of getting their full entitlement claims observers, many are now struggling to get finance or insurance cover because of their past exposure to Harris Scarfe.
Allegro took control of $70 million of secured debt as part of the deal – the value of which has never been disclosed – and was paid in full, while unsecured creditors including suppliers and landlords have received nothing.
Harris Scarfe creditors have been offered between 1.3¢ and 20.5¢ in the dollar and so far, they have not received a single cent according to one supplier.
The trustee, Tim Norman from Deloitte, said the dividend would be delayed while it waited to finalise claims from landlords.
Several suppliers have told The Australian Financial Review they were encouraged to deliver higher than normal levels of stock in the days and weeks before Harris Scarfe collapsed. This lifted their exposure to the retailer to record levels.
Some suppliers such as Melbourne based Spectrum Brands are owed more than $1 million and say that as a result of the delayed distribution from the creditors trust they are unable to quantify their losses for tax purposes or reclaim GST on the sales they made to Harris Scarfe.
“It does not pass the pub test at all,” said one supplier owed about $250,000. “You know you just got done.
“Most suppliers received very substantial orders in November, way beyond what they’d normally do – they started buying things they hadn’t bought before, they’d normally shave a few cents off [what we quoted] but they accepted every price and said deliver as soon as you can.
“So, our exposure doubled at that time of year and a few weeks later they’re in receivership. There were plenty funds to pay the administrators and enough liquidity for the private equity company [Allegro] to get their $70 million back.”
The administrators at BDO conducted extensive investigations into the deal and the security held by Allegro.
The security was found to be valid and enforceable and the administrators concluded the sale was not a creditor-defeating disposition.
“Best & Less has turned into a goldmine for them and now they’re going to float that business – they’ll make a tonne of money out of it,” the supplier said.
Another supplier lost more than $1.5 million and says he has struggled to access finance because of the size of his losses.