This is why insolvency experts are watching the Harris Scafe, Best & Less and Debenhams Australia owner.
1. Parent company Steinhoff International is in big trouble
Steinhoff International saw 11.3 billion euros wiped from its market value in December, after revelations of accounting irregularities. The revelations relate to the viability of around 6 billion euros worth of assets on the balance sheet of operations in Europe. It is believed earnings from fiscal 2015 - 2017 will need to be reinstated. Steinhoff has outstanding debt of 10.7 billion euros, with almost half of that in Steinhoff Europe AG.
2. Australian lenders are keeping watch
This week, NAB and ANZ appointed McGrath Nicol to monitor the local business. Steinhoff Asia Pacific however, maintains it is trading normally with total sales across Australia up 3.1% on last year. It has also appointed its own team, legal firm Minter Ellison and advisors Ferrier Hodgson, to assist local management. The Asia Pacific Group operates Harris Scarfe, Best & Less and Debenhams Australia with around 10,000 employees.
3. It could be picked apart
NAB and ANZ reportedly loaned funds to Steinhoff Asia Pacific on the basis of guarantees from the parent company. With the international branch now under close surveillance, there are reports its local retail brands could be sold off to mitigate risk. It is understood private equity firms are eager to buy assets from the local branch, as it looks to balance around $300 million worth of loans to various banks.
4. There's a management wipeout
Following the accounting scandal, Steinhoff International CEO Markus Jooste, chairman Christo Wiese and chief financial officer Ben la Grange all resigned from their post. The company has hired PwC to investigate the matter and appointed several firms to handle discussions with lenders, advise on operations and cashflow.
5. There have been issues before
In 2011, Harris Scarfe entered into receivership after accounting issues that led to criminal charges and jail terms for some executives. In 2012, it was sold to South African private equity firm Pepkor and two years later, joined the Steinhoff International portfolio. Harris Scarfe operates 55 stores across Australia.