EXCLUSIVE:Westpac Tipped To Be Looking To Recover Millions From Grays Online After $10M Fine

Banking Group Westpac is looking to recover close to $100M from the Quadrant Private Equity Investment owned Grays Online, according to sources with some observers claiming the business is “back up for sale”.

It was only three years ago that the business that is used by CE and appliance brands to offload surplus stock and warranty returns, was subject to an IP0 with Quadrant trying to get $500 million for a business that several insiders claim is worth less than $50M today.

ChannelNews understands that the debt with Westpac is over $95M.

The proposed IPO was withdrawn from the market because of questions about Grays financials and a lack of interest from potential buyers, who after reading the IPO prospectus could not see any of the value that Quadrant were spruiking claim sources.

According to one potential buyer the IPO Prospectus “raised more questions than answers as to the state of the business”.

As the IPO was being offered to the market the Australian Competition and Consumer Commission was starting to investigate the auction house for questionable trading, as well as illegal and misleading conduct relating to the sale of motor vehicles, that resulted in the Federal Court fining Grays eCommerce Group Limited $10M dollars.

They were also ordered to compensate former Greys customers.

Both the fine and payment to customers has not been paid to date.

During the Federal Court case before Justice Nicholas management, who Quadrant were putting forward as experienced and who would be running the Company if an IPO had gone ahead, admitted that there were 753 listings which contained one or more false or misleading representations on the Company’s web site.

ChannelNews understand that Quadrant management were not aware of the offences being committed by Greys management.

Since the court case Westpac is believed to have loaned the business an additional $15M dollars despite the business having limited assets due to the goods they sell being owned by third parties.

We also understand from sources who have been approached, that a leading stock broking Company has offered the business for sale during the past 12 months.

Several CE appliance distributors, and retailers use Grays to sell their returns and end of life stock.

Currently the site is listing hundreds of appliances from brands including KitchenAid, Roborock, Dyson, Whirlpool, Breville Braun, Philips and Hisense.

Currently Lenovo has over 100 products listed for sale including notebooks, monitors and their handheld PC gaming machine.

The stock is believed to be a combination of retail run out and warranty returns that are being sold.

During the Federal Court hearing Justice Nicholas said, “It is likely that the actual number of listings containing false or misleading representations is higher than 753”.

The Judge concluded that over a two year period, Grays management including the former CEO Christopher Corbin and then COO who are no longer with the business, were well aware that vehicles were being sold based on false information, they were also aware that there were deficiencies in how complaints were being addressed by the customer service team.

Justice Nicholas, heard from David Mullins, a partner of Ernst and Young, who had been engaged by Gray’s solicitors in October 2023 to provide an opinion on whether Grays had the financial capacity to pay the $10M penalty.

He concluded that Grays would not have the capacity to pay the pecuniary penalties within the timeframes set down by the Court.

When the Quadrant IPO Prospectus was issued Grays had borrowings of $42.6M and cash on hand of $11M.

Lease liabilities at the time were $28.4M.

Total debt was listed as of 31st of December 2020 at $60.3M.

For the purposes of issuing a Pro Forma for the prospectus the debt was suddenly reduced to $3.7M this resulted in questions being raised about intercompany borrowings.

Mullins who had been employed by Grays and their 90% owner Quadrant, gave evidence that Grays would have the capacity to pay a penalty of $10 million if the payment period was stretched out between June 2025 to June 2027 with $0.5 million paid in June 2025; $1.5 million paid by June 2026, September 2026 and December 2026; and $2.5 million in March 2027 and June 2027.

As for the borrowings that appeared to reduce Grays capacity to pay the fine at the conclusion of the trial Justice Nicholas said “Evidence shows that an unsecured loan of around $25 million from Quadrant to Grays was repaid by Grays on 25 June 2021. The loan was for a fixed term expiring on 31 July 2028 and was repaid around seven years early”.

He said that It appears from the financial statements that the loan (with accrued interest) was discharged using an unsecured facility provided by Westpac Banking Corporation.

I was informed by Senior Counsel for the ACCC that the ACCC’s investigation of Grays commenced in August 2021.

It was not suggested by the ACCC that the loan repayment was prompted by the ACCC’s investigation.

He also said that he had to consider whether any related party transactions contributed to Greys inability to make a timely payment of an agreed penalty and whether “what amounts to a very leisurely instalment plan should be approved by the Court”.

He claimed that the re-financing transaction would appear to have substantially reduced Gray’s borrowing costs because the interest rate payable under the Westpac facility was substantially less than that accruing under the Quadrant loan.

Senior Counsel for the ACCC told the court that they were happy to accept delayed payment “preferable to the destruction of the company”.

The Judge said, ” In light of Mr Mullins’ evidence, I accept that the time to pay provided for under the proposed orders is necessary if the agreed penalty is to be paid in full”.

ChannelNews has approached both Grays and Quadrant Private Equity Investment for comments. We are still waiting for a reply.

ChannelNews is also not aware of any wrong doing by current management running Grays today.