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Could Dick Smith Have Been Saved By US Chapter 11 Laws

Peter Adderton the founder of Boost Mobile who is now the CEO of 360fly which is being tipped as one of the hottest new CE products this year, has said that he believes that there is a possibility that Dick Smith could have been saved if Australia had a Bankruptcy Code similar to the US Chapter 11.

Dick Smith was placed into administration by the banks who were owed less than $140M.

Under the US system a business can be placed into Chapter 11 while they sort out their problems.

Adderton an Australian now based in the USA told ChannelNews during an exclusive interview, that the USA would not have airlines, hire Companies, banks, or insurance Companies without Chapter 11 bankruptcy protection.

He said “When I first arrived in the USA I was sceptical about the process but it has saved companies like United airlines, several banks and it has its merits”.

“I think Australia should look at adopting the process as it could have saved Dick Smith”.

A chapter 11 case begins with the filing of a petition with the bankruptcy court. The filing can be voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors.

In the case of Dick Smith which was finally placed into administration with debts of over $400M a Chapter 11 process would have allowed Dick Smith to negotiate additional borrowings. The banks would have been stopped from placing the business into administration and creditors would have had a greater say in the outcome of the Company.

In the USA the debtor usually remains in possession of its assets, and operates the business under the supervision of the court and for the benefit of creditors.

The debtor in possession is a fiduciary for the creditors. If the debtor’s management is ineffective or less than honest, a trustee may be appointed.

Allegations that Dick Smith management were being “less than honest” as some creditors have claimed could have been challenged and investigated.

A creditors committee is usually appointed by the US Trustee from among the 20 largest, unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor’s operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.

Peter Adderton is an experienced Australian businessman who after founding Boost Mobile in Australia and New Zealand in 2000, took the Boost Mobile brand to the United States in 2001.

Initially they formed a venture with Nextel Communications. Using Nextel’s iDEN network, Boost Mobile offered an unlimited push-to-talk service, marketed as only costing a dollar a day.

Sprint Corporation acquired Nextel Communications in 2006, leaving Boost Mobile as a subsidiary of the merged company, Sprint Nextel Corporation.

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