Dick Smith Gone Bust

[76woodenspooners]

Millionaire CEO's roll on the floor laughing at people who buy gift cards.

It has all the thoughtlessness of just giving someone cold hard cash as a gift, with a fraction of the value. plus a huge amount of people never use their gift cards and they end up expiring. Hundreds of millions worth per year goes to waste in gift cards, could of just been kept as cash.

Not always.

I've seen it used by companies to pay workers a bonus (eg: pay worker cash bonus = worker pays income tax on cash; give worker gift voucher = worker doesn't pay income tax on gift voucher)

Dunno how legit it is, but seen it done.

It's up there with loyalty programs. Fly lots for business = collect frequent flyer points = free (and fringe benefits tax free) flight to somewhere sunny for holidays.

 

[76woodenspooners]

and The Admins Pocketed that Money?

No they don't pocket the money. But that cash will no doubt go towards paying off the major creditors. They would have known this well in advance and used Xmas as a means of pulling in an extra god knows how much money that they knew damn well would never end up in the rightful owners hands (ie the poor suckers holding gift cards)

Just watching the Channel 10 news and surprise surprise, another one has gone under. Laura Ashley who has 38 stores in Australia has just gone into voluntary receivorship. No doubt another case of many people who have just forked over their cash losing it for good.

In a way TradeDraft is correct.

In one way you could consider Administrators to be like a business SWAT team who drop in, quickly assess the state of the company, and then report their findings to the creditors. By law they have a little over 30 days to do that (not long). It's important to remember that the Administrators act on behalf of the creditors (not the company managers, not the company owners or shareholders). At the end of the ~ 30 days the Administrators make a recommendation to the creditors to ...

(1) Hand the company back to management (this rarely, if ever, happens ... In the movie "Spotswood" is one of the rare times it's happened ... Great Australian / Melbourne movie by the way, first movie featuring a very young Toni Collette, great cameo role by Sir Anthony Hopkins, I digress ...)

(2) Liquidate the assets (eg: flog all the stuff off at Pickles auctions, or Manheim auctions, or ...)

(3) Enter into a 'Deed of Company Arrangment' which is a fancy term for flogging the company off to anybody who will buy it.

The creditors will vote which of those three options they want the Administrators to carry out.

So who are the creditors? They are people who are owed money money by the company - suppliers, staff (entitlements, pay, holiday pay), and others (who I'll get to in a minute). Sadly, I'm pretty sure it wouldn't include people who are holding gift vouchers.

There is a pecking order amongst the creditors. Those at the top of the pecking order get paid first, and then if there is any money left then those next in the pecking order get paid, and so on and so forth.

Now this is where TradeDraft is kinda correct ...

... Who is at the top of the pecking order of creditors? The administrators themselves. They get paid first.

And how much do they get paid? Bucketloads.

I was once involved in a company that went into administration and one of the first thing the administrators did was circulate their schedule of fees (there's a very good reason for this which I'll get to later). My eyes popped out of my head - their photo copy clerk (the person who drives the big green button on the photocopier) was being charged out at $120 per hour! Now I shouldn't be making value judgements, and maybe your world is different to mine, but in my world charging $120 an hour for somebody to press a green button is obscene! It went up from there, a generous number of staff who all were being charged out at exorbitant rates right up to the Administrator themself who was being charged out at around $800 an hour.

I don't remember exactly what their fees were, but it was in the hundreds of thousand of dollars for a little over a months work for a staff of around 6 to 8 people. (the creditors - including staff - vote on whether the administrators get paid or not - the creditors don't really have much of a choice really - but that's the reason why the administrators circulate their schedule of fees first up - to cushion the shock)

A curiousity, one of Australia's preeminent Administrators is quite close to home - Mark Korda who serves on the board of the Collingwood Football club. He made his fame and fortune by being the co-Administrator for Ansett Airlines.

 

[76woodenspooners]

on the bright side ive cetainly raided the local stores for some bargains.

canon 700d DLK for $299 - normally about $1000 - for the mrs

various bits and pieces normally not worth the bother, but at abnormally cheap prices just had to - cooling pad, mobile modem, sim cards, various tech pieces for tv connections, hair trimmer, lots of cables etc etc.

So all the Shops are Still Open?

That basically means the administrators have (very quickly) come to the conclusion that the company is on life support and ain't gunna make it.

Administrators usually do - it's the lowest risk for them.

Flog off as much as possible now rather than giving it to the liquidators.

 

[eddiebankbalance]

This expiry date on gift cards is bullshit. I very much doubt courts will waive in favour of dicksmith/myer/davidjones etc etc

I might place an ad buying expired gift cards @ 10-20% of their value.

 

[Pedro]

This expiry date on gift cards is bullshit. I very much doubt courts will waive in favour of dicksmith/myer/davidjones etc etc

I might place an ad buying expired gift cards @ 10-20% of their value.

I wonder if its ever been tested. Their advice must be that it'll hold up, although it seems extremely unfair to put an expiry date on what essentially is cash.

 

[eddiebankbalance]

Maybe they take the approach of humans adhering to "expired" dates?

I have heard that Bunnings have gift cards without any expiry date. Wooohoo

 

[eddiebankbalance]

So sad they've taken legal tender money out of circulation that could be cashed into gold. Yep, the good old days.

 

[sirlothie]

In a way TradeDraft is correct.

In one way you could consider Administrators to be like a business SWAT team who drop in, quickly assess the state of the company, and then report their findings to the creditors. By law they have a little over 30 days to do that (not long). It's important to remember that the Administrators act on behalf of the creditors (not the company managers, not the company owners or shareholders). At the end of the ~ 30 days the Administrators make a recommendation to the creditors to ...

(1) Hand the company back to management (this rarely, if ever, happens ... In the movie "Spotswood" is one of the rare times it's happened ... Great Australian / Melbourne movie by the way, first movie featuring a very young Toni Collette, great cameo role by Sir Anthony Hopkins, I digress ...)

(2) Liquidate the assets (eg: flog all the stuff off at Pickles auctions, or Manheim auctions, or ...)

(3) Enter into a 'Deed of Company Arrangment' which is a fancy term for flogging the company off to anybody who will buy it.

The creditors will vote which of those three options they want the Administrators to carry out.

So who are the creditors? They are people who are owed money money by the company - suppliers, staff (entitlements, pay, holiday pay), and others (who I'll get to in a minute). Sadly, I'm pretty sure it wouldn't include people who are holding gift vouchers.

There is a pecking order amongst the creditors. Those at the top of the pecking order get paid first, and then if there is any money left then those next in the pecking order get paid, and so on and so forth.

Now this is where TradeDraft is kinda correct ...

... Who is at the top of the pecking order of creditors? The administrators themselves. They get paid first.

And how much do they get paid? Bucketloads.

I was once involved in a company that went into administration and one of the first thing the administrators did was circulate their schedule of fees (there's a very good reason for this which I'll get to later). My eyes popped out of my head - their photo copy clerk (the person who drives the big green button on the photocopier) was being charged out at $120 per hour! Now I shouldn't be making value judgements, and maybe your world is different to mine, but in my world charging $120 an hour for somebody to press a green button is obscene!). It went up from there, a generous number of staff who all were being charged out at exorbitant rates right up to the Administrator themself who was being charged out at around $800 an hour.

I don't remember exactly what their fees were, but it was in the hundreds of thousand of dollars for a little over a months work for a staff of around 6 to 8 people. (the creditors - including staff - vote on whether the administrators get paid or not - the creditors don't really have much of a choice really - but that's the reason why the administrators circulate their schedule of fees first up - to cushion the shock)

A curiousity, one of Australia's preeminent Administrators is quite close to home - Mark Korda who serves on the board of the Collingwood Football club. He made his fame and fortune by being the co-Administrator for Ansett Airlines.

Crooks picking the bones of a carcass... $120 is more than a doctor gets per hour...

 

[Temploar]

Millionaire CEO's roll on the floor laughing at people who buy gift cards.

It has all the thoughtlessness of just giving someone cold hard cash as a gift, with a fraction of the value. plus a huge amount of people never use their gift cards and they end up expiring. Hundreds of millions worth per year goes to waste in gift cards, could of just been kept as cash.

As someone with 10 Coles gift cards in his wallet, and not even a Coles in walking distance.... I feel your pain.

 

[Magpie Girl]

I wonder if its ever been tested. Their advice must be that it'll hold up, although it seems extremely unfair to put an expiry date on what essentially is cash.

My daughter used to work in retail and it's actually illegal to refuse a gift card on the basis of the expiration date. The date can't be inforced by the retailer.
It's just that most people don't challenge it

 

[76woodenspooners]

Crooks picking the bones of a carcass... $120 is more than a doctor gets per hour...

It could be a very exciting and noble pursuit - taking a failed enterprise and turning it around.

Heck, any Administrator who can take a household brand like Dick Smith which has had they eyes picked out of it by a private equity firm, and within six weeks the Aministrator can figure out a way for the creditors to get 100 cents in the dollar, and a way for the business to somehow become viable (and keep 100's of people in their jobs) - heck if an Administrator can do that then they are well worth their elevated fees.

Or they could just take the easy path and recommend to the creditors to liquidate.

 

[sirlothie]

It could be a very exciting and noble pursuit - taking a failed enterprise and turning it around.

Heck, any Administrator who can take a household brand like Dick Smith which has had they eyes picked out of it by a private equity firm, and within six weeks the Aministrator can figure out a way for the creditors to get 100 cents in the dollar, and a way for the business to somehow become viable (and keep 100's of people in their jobs) - heck if an Administrator can do that then they are well worth their elevated fees.

Or they could just take the easy path and recommend to the creditors to liquidate.

I reckon it will remain in a limited capacity, Dick Smith is an iconic Aussie brand and the technology market will not wain in these times. I think JB Hifi has had a few wobbles but came through... hopefully they can remedy the situation as I like the store...

 

[76woodenspooners]

This expiry date on gift cards is bullshit. I very much doubt courts will waive in favour of dicksmith/myer/davidjones etc etc

I might place an ad buying expired gift cards @ 10-20% of their value.

Issued gift vouchers are a liability on the balance sheet

Look at it this way: My company ACME Robots and drones sells $10 million worth of gift vouchers to my customers. I then try to sell my business to you. You do your due diligence and look at my balance sheet and see business is booming - ACME Robots and drones has recently had $10 million of sales! Might you be interested to know that the $10 million was in gift vouchers that, after you've bought my business, customers will be turning up to redeem?

So issued gift vouchers are a balance sheet liability - how long should a company be expected to carry that liability? Forever? A business should be expected to carry the liability of unredeemed gift vouchers forever? - that's unreasonable. The central bank wouldn't be too happy about that either - it'd be tantamount to damaging legal tender (a criminal offense)

 

[Pedro]

My daughter used to work in retail and it's actually illegal to refuse a gift card on the basis of the expiration date. The date can't be inforced by the retailer.
It's just that most people don't challenge it

That sounds like common sense if thats the case. There's no logical reason that they should be able to enforce an expiry date.

 

[Pedro]

Issued gift vouchers are a liability on the balance sheet

Look at it this way: My company ACME Robots and drones sells $10 million worth of gift vouchers to my customers. I then try to sell my business to you. You do your due diligence and look at my balance sheet and see business is booming - ACME Robots and drones has recently had $10 million of sales! Might you be interested to know that the $10 million was in gift vouchers that, after you've bought my business, customers will be turning up to redeem?

So issued gift vouchers are a balance sheet liability - how long should a company be expected to carry that liability? Forever? A business should be expected to carry the liability of unredeemed gift vouchers forever? - that's unreasonable. The central bank wouldn't be too happy about that either - it'd be tantamount to damaging legal tender (a criminal offense)

If they are happy to accept the revenue up front and pump up their P & L, they should also accept the fact that they own the liability. I bet they don't give up on chasing debtors after 12 months.

Anyone buying that business in that scenario would surely value it accordingly anyway. As you say, they will only inherit the liability, not the income. The sale price should reflect this.

 

[76woodenspooners]

If they are happy to accept the revenue up front and pump up their P & L, they should also accept the fact that they own the liability. I bet they don't give up on chasing debtors after 12 months.

Depends on the business and industry, but in my world creditors typically stop supply around 90 days, and if they could be bothered they'll send a letter of demand (via their solicitor or debt collectors) after 120 days. Usually it's not worth pursuing - certainly not for 12 months unless it gets seriously legal.

Anyone buying that business in that scenario would surely value it accordingly anyway. As you say, they will only inherit the liability, not the income. The sale price should reflect this.

Exactly.

So how long should that liability be carried for?

Should Coles Myer be devalued by $billions because of all those gift vouchers that have fallen down the back of the sofa over the last 10 years? 20 years? 30 years? 50 years? There has to be a statute of limitations.

 

[Pedro]

Depends on the business and industry, but in my world creditors typically stop supply around 90 days, and if they could be bothered they'll send a letter of demand (via their solicitor or debt collectors) after 120 days. Usually it's not worth pursuing - certainly not for 12 months unless it gets seriously legal.



Exactly.

So how long should that liability be carried for?

Should Coles Myer be devalued by $billions because of all those gift vouchers that have fallen down the back of the sofa over the last 10 years? 20 years? 30 years? 50 years? There has to be a statute of limitations.

I suppose there's not an easy answer in that case. You make a valid point. It just seems extremely unfair to hand over cash and 2 weeks later be told that its no good. Which I guess is the polar opposite to your scenario.

 

[vjknight]

and they are done.

to close all stores over the next 8 weeks.

liquidation sales to begin anytime now.