Dick Smith's $A260m-plus shortfall

Creditors of retail chain Dick Smith will likely be left with a shortfall “in excess” of $A260 million, while banks will only receive a “partial return,” administrators McGrathNicol say.

Dick Smith owed more than $A400 million when it collapsed in January, just a couple of years after listing on the ASX.

More than 390 stores in Australia and New Zealand have since closed, and more than 3300 staff lost their jobs.

Employee entitlements have now been paid in full, while online Australian department store Kogan bought Dick Smith’s brand and customer base for $A2.6 million in March.

A report to creditors from McGrathNicol, released yesterday, says there is “little prospect” of a return to unsecured creditors, which includes gift card holders, while the secured banks will only receive a “partial return.”

The ultimate outcome is likely to be a shortfall of $A260 million, the report says.

McGrathNicol administrator Joe Hayes says the reasons for Dick Smith’s “rapid demise” are complex and inter-related, but the successful IPO following strong growth and results pre-float were underpinned by an expansion plan and new lines of business.

“In that environment, management were very focused on increasing revenue and generating profitability.

“This ultimately came at the expense of sustainable growth and the business struggled to maintain performance.”

Mr Hayes says the expansion plans and store growth used all surplus earnings and the business required significant borrowing.

The expansion plans went “unchecked” during the first half of 2015 and major inventory purchasing decisions meant Dick Smith had too much stock, which was not saleable and was overvalued.

“By December 2015, a rapid clearance sale was needed at a time the business should have been achieving strong margins.

“However, cash receipts were simply insufficient to meet commitments.”

The report says the appointment of administrators was “the only step” available to Dick Smith.

A meeting of creditors will be held in Sydney later this month. 

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