NATIONAL: Embattled denim group Ksubi was juggling close to 100 repayment arrangements with trade creditors in the lead-up to its voluntary administration, “drip-feeding” them funds as it plunged into $9 million worth of debt.
The depth of Ksubi’s financial woes has finally been revealed in a report from its administrators Paul Andrew Billingham and Said Jahani, who were appointed to the company on January 11. As exclusively broken on www.ragtrader.com.au, creditors of the group voted to have the group’s liabilities liquidated at a meeting last Tuesday.
Administrators had fielded 30 expressions of interest in the company and its assets over the course of three weeks, including a formal but conditional offer from an unamed “reputable party”.
Hodge and Bleach moved to secure the group for $5 million, with several instalments to be paid until March 2013 in addition to accrued interest on secured debt ($4.3 million) with national bank Westpac.
This was of little relief to unsecured creditors who now stand to secure a maximum of five cents for every dollar owed. While Ksubi had reduced trade debt from $3.2 million in March 2008 to $1.9 million in June 2009, this figure soared to over $4 million by the time it was placed into administration. By this stage, it was also drowning in 99 repayment arrangements with burnt trade suppliers, according to Billingham and Jahani.
“The group was ‘juggling’ and drip-feeding payments to creditors, the intensity of which increased in calendar 2009 due to a dimunition of cash,” their report to creditors noted. “The legacy of debts was too high to avoid a restructure outside of a formal insolvency proceeding.”
Ksubi directors had attempted to restructure the group through several initiatives dating back three years, including the appointment of a new management team in 2008, reducing expenditure with 13 redundancies the following year and formally outsourcing its distribution to Bleach in July 2009.
However the decision to relocate its manufacturing to the United States in calendar 2008, chronic overtrading in the market and inadequate management information systems (MIS) rendered these attempts ineffective.
Administrators noted its MIS systems were so poor, the company overstated its level of inventory by $4 million during one financial period.
“This had been unidentified by management or their external accountants,” their report stated. “Whilst management implemented a sophisticated retail management information [software] system... they did not utilise it to its full potential and information they received was not accurate or timely.”
Despite turning over $19.7 million in fiscal 2007, the group recorded net losses of $7.1 million in 2008 and $1.5 million in 2009. Margins were further cropped by the sudden drop in the Australian dollar in late 2008 and early 2009, which saw an increase in the cost of sourcing raw materials in US dollars. During this period, the company also battled through a sharp decline in sales.
“The decline... was a factor of significant unexpected and supply chain issues through relocating its denim manufacturing to the US,” the administrators’ report noted.
Ksubi continued to trade throughout its administration, with Billingham and Jahani forecasting total sales of $281,000 and a trading loss of $30,000 from January 11 to February 16, 2010.
Assia Benmedjdoub