We Are Not A Bank Claim Distributors, Hi Fi Retailers Told To Pay Their Debts

An intense situation is developing with Hi Fi retailers now facing the real possibility that distributors who claim that they have become “The Bank” for struggling retailers, set to demand their outstanding money a move that could send some of them into bankruptcy.

The spread of the Coronavirus and the shutting down of businesses is set to see several specialists Hi Fi retailers fail claim suppliers.

Several distributors that ChannelNews have spoken to claim that unless they move to taking bankruptcy action now, they could see themselves exposed, with insurance cover cancelled and liquidators questioning, the relationship between retailer and distributor based on the amount of money owing and the length of time that distributors have not been paid.

Several distributors claim that “retailers need to either obtain a loan and repay their debts or face liquidation”.

One large distributor said “There are retailers out there who don’t have bank loans because they don’t want to put their house or properties up as collateral instead they are using the credit supplied by distributors who are now facing their own problems” they said.

“Due to the Coronavirus epidemic retailers need to now go to their banks and get a low interest loan to cover their debt if they don’t or can’t get a loan they should not be in business and distributors should take action”.

Another Melbourne based retailer who recently removed stock from one retailer said, “The debt among distributors is excessive and I suspect some retailers are now operating while insolvent as their debt exceeds their sales”.

“Many of these audio retailers also owe money to the tax office, they are also having to compete up against a man in a van who is taking their custom install business without the overheads that many retailers face”. They added.

Recently ChannelNews revealed that the Lifestyle store in Sydney had taken an injection of capital with executives claiming that “We are not going broke”.

Distributors are divided over pleas for the government to impose a “moratorium” on insolvent trading laws to keep businesses afloat and protect directors, with some insolvency practitioners warning it will hurt creditors and worsen the economic downturn.

Many of the small Hi Fi businesses face going out of business in coming months because of a severe downturn in economic activity from the coronavirus disruption and the pressure to repay their debt to suppliers.

“What these audio retailers should be asking themselves is “Will I get sued?” for insolvent trading said one observer who believes that the intervention of the Reserve Bank and a move by the Governments to support small business is an excellent time for them to pay the distributors who have been supporting them for several years with extended loans and consignment stock.

Australian Restructuring Insolvency & Turnaround Association chief executive John Winter said keeping unviable SMEs alive would have a “snowball” effect on their small business suppliers who would “cop it in the neck”.

“The risk with removing insolvent trading provisions is you do greater harm to unwitting creditors who are already in a loss position, such as the ATO, employees and other small businesses,” Mr Winter said.

“You think you’re saving jobs in one business, but you’re ultimately costing a range of other businesses.”