Drawing a line
The fallout from the collapse of Victorian fashion retailer Brands Direct continues to reverberate among suppliers.
The company, which traded under the name Global Rags, was forced into administration in November during which it was revealed the business owned by Leon Siebel owed around $8 million.
Around $3 million of this was to secured creditors NAB, Provident Cashflow and Maryridge - the latter of which is controlled by members of the Siebel family. But while Leon Siebel may have ended up with egg on his face after his failed venture, it was his loyal suppliers who suffered the hardest hit. These included Classic Sportswear, Icon Clothing and Olive Clothing which, among them, were left some $250,000 out of pocket - even before the lawyers were involved.
As Global Rags' assets hold no value, it owns no land and - according to administrators the company's stock has been significantly over-valued - the chances of recouping any money are slim to say the least.
But could the whole sorry mess have been avoided?
A report by administrators Ferrier Hodgson found Global Rags was first incorporated on October 12, 2004. Brands Direct acquired the business from a company called ACIB Accumulus - another company owned and controlled by members of the Siebel family - just six weeks later on November 25, 2004. The administrators noted the sale of the business and assets of ACIB occurred on the same day ACIB was placed into voluntary liquidation. Control of ACIB was later handed back to directors.
History now appears to have repeated itself.
Ferrier Hodgson noted that when staff arrived at Global Rags' head offices on November 29, they were informed the business had been sold to another member of the Siebel family - for a deposit of just $5000 - that very same day. The sale has since been repudiated by administrator James Stewart.
Stewart's report highlighted a review of Global Rags' bank statements for the period six months prior to his appointment. They showed that while the company continued to trade during this time, it did little to reduce its overdraft facility. On April 28 its overdraft balance was $343,165 on November 27 it had spiralled to $857,767.
Interestingly, around half of the company's creditors were already outside the 30 days credit terms with some already 90 days plus. As early as March 2007 several of them had already engaged solicitors and debt collectors to recover amounts owing to them. Further documentation showed lease obligations had not been maintained for some time and some financiers had already issued repossession notices.
Leon Siebel's explanation for the company's precarious financial position was blamed on an inability to secure continued funding. However the administrators found that while this may have contributed, other reasons included poor financial management, lack of control over operating costs, lack of adequate working capital and poor stock buying control had also played a part.
All of which does little to appease the out-of-pocket creditors.
At least one supplier is determined to see this thing through to the end and is currently undertaking court action against Leon Siebel. The supplier has vowed to do everything in their power to ensure this situation is not repeated.
Clearly this case and others like it show the inadequacies in the laws governing business practices in this country. How many more ethical boundaries will be crossed and how many more suppliers will be burnt while these sort of business practices are allowed to continue.
Regular readers please note: Scottish-extracted Husband in Training (SHIT) and Dog have been retired from this column by order of management.
By Tracey McEldowney