By James Wells
SYDNEY: Retravision NSW may have been trading while insolvent from June 2006 or earlier according to a highly critical report issued to creditors by Grant Thornton – the administrators appointed to the business late last month.
The report outlines the key reasons behind the demise of the retail group which led to the appointment of Paul Billingham and Trevor Pogroske as joint administrators on 24 October.
The report says the major reasons behind the failure of the business were a lack of credit control, limited skill set by the board of directors, significant disruption in the senior management team over the last three years, lack of appropriate board and management reporting, potential conflict as a result of directors also being shareholders, culture of the ‘Retravision family’ which has allowed members to extend their creditor terms well beyond reasonable limits without appropriate action being taken by management.
The report claims that Retravision NSW incurred a loss after tax for the 12 months to June 30 2006 (FY06) of $9.5 million which was almost entirely as a result of the $17 million bad debt incurred by the loss arising from the receivership of two of the business’ major retailer debtors – Homezone with debt approximately $11 million and Val Tel with debt of approximately $8.4 million.
Retravision NSW achieved a gross profit of $7.3 million in FY06 as a result of an increase in interest charged and penalties imposed on members
According to the report, Retravision NSW accounts show profits of $0.2 million and $0.4 million were generated in the financial years ending 30 June 2005 (FY05) and 30 June 2004 (FY04) respectively.
The report also states that ‘trade receivables’ or money owed to Retravision NSW decreased from $71.7 million in FY05 to $53.3 million in FY06.
“This was not as a result of an improvement in debtor recovery, but rather an increase in provisions and write-offs. The FY05 debtor provisions may have been substantially inadequate.”
The report claims that the Retravision Burwood property, located at 21-23 Burwood Road in Sydney was revalued in FY06 based on an independent valuation as at 30 June 2006.
“This led to an upward revaluation of land and buildings from $2.3 million to $4.3 million. On the basis of a ‘curb side’ valuation undertaken by Laing & Simmons on behalf of the receivers, the property is presently valued between $2.8 to $3.0 million,” the report said.
The report also criticised the limited skill set of Retravision NSW’s board of directors, which as per the constitution consisted entirely of shareholders in the business.
“It is our opinion that although the board of directors may have comprised of very experienced retailers, they did not necessarily have the required skill sets to properly manage and improve the operations of the company,” the report said.
“This was not assisted by the significant changes in the senior management team during the last three years.
“Our investigations to date have established that the issues in relation to the lack of appropriate credit controls commenced after the retirement of the previous long serving CEO, Mr John Gross, in October 2003.
“In addition, the board members dual role as directors and members (debtors/creditors) places the directors in a position of potential conflict as their role and responsibilities as a director may conflict with their role and responsibilities as a member (creditor/debtor) and in turn operator of their stores).”