Harris Scarfe CE & Appliance Suppliers Set To Only Get Cents But 5 Week Owner Gets $70M
Several appliance and CE distributors are set to only get between 1.3¢ and 20.5¢ in the dollar under a proposed deed of company arrangement for the failed Harris Scarfe, Allegro the Company who owned the stores for only three weeks will get $70M.
Unsecured creditors which range between $146 million and $236 million are facing major losses despite an earlier offer from Spotlight Group.
One Melbourne based distributor is facing losses of over $1.1M.
Harris Scarfe was another Greenlit Brands disaster, earlier this week another Greenlit Brands retail initiative in Australia Debenham UK was also placed into administration.
The 66-store department store chain went into receivership in December, less than a month after owner Greenlit Brands agreed to sell the retailer to private equity firm Allegro Funds, which is the only secured creditor.
At the time questions were being asked as to whether Harris Scarfe was already in trouble prior to Greenlit Brands which was previously called Steinhoff. The name change was made as the Steinhoff name was mired in a financial scandal.
As soon as Harris Scarfe was placed into administration 22 loss-making stores were closed.
Shortly afterwards Morry Fraid and Zac Fried’s Spotlight Group offered to buy the troubled retailer who has been placed into administration before.
According to the creditors report, Spotlight Group will pay between $46 million and $55 million, comprising $22.3 million in cash, a deferred consideration of $6.6 million for rent savings achieved under new lease arrangements, the assumption of about $20 million in liabilities and the assumption of about $6.5 million in employee entitlements.
Since the deal was struck the stores have struggled due to a massive retail downturn due to the Coronavirus epidemic.
The receivers said that proceeds of between $3.25 million and $17.6 million will go into a creditors trust.
Unsecured creditors will be split into two pools – trade creditors or suppliers who have supplied merchandise to the group (Pool A) and any other creditors (Pool B) including landlords.
Pool A creditors will get between 1.3¢ and 20.6¢ in the dollar and Pool B creditors 1.3¢ to 4¢. If there is a surplus after the payment of 4¢ to both pools the surplus will be paid to Pool A creditors on a pro-rata basis.
According to a report by the receivers Deloitte Restructuring Services partners Vaughan Strawbridge, Kathryn Evans and Tim Norman, Harris Scarfe lost $5.1 million before interest and tax on sales of $388 million in 2018 and lost $10.5 million in 2019 on sales of $383 million.
The AFR reported that the receivers blamed Harris Scarfe’s collapse on loss-making stores, most of which opened between 2014 and 2019, and the retailer’s inability to access funding after the sale to Allegro, which is the first ranking secured creditor and will receive a return of almost $70 million.
Despite the trading losses, the administrators found that Harris Scarfe was solvent up until the date of the sale to Allegro on December 2.
“From this date, the financial support previously provided by the parent entity was unavailable, the group had no working capital funding and the group was not in a position to fund its ongoing trading losses and meet its liabilities as and when they fell due,” the report said.
“However, it is noted that the [sole] director took advice and quickly took steps to place the group into administration when it became apparent that the group had no financial support. “