The continuing drama over the control and ownership of Retail Adventures seemed to have taken another turn once again. Creditors voted on whether they should agree to a deed of company arrangement (DOCA) in which they would accept a payout of a fraction of the debt originally owed to them at the time the company went into voluntary administration.
The payout would be on the order of about 5 to 6 cents on the dollar owed to them. One of the reasons that number is so low — much less than the 20-45 cents administrators are estimating it should be — is because the person who bought the company out of administration, Jan Cameron, the founder of Kathmandu Holdings (ASX: KMD) is trying to recover $77 million of secured debt owed to her from the company through the DOCA.
In the 2 September meeting, unsecured creditors of the Retail Adventures cast their votes to accept the arrangement. The controversy of the payout is that administrators are trying to make the case that about half of that $77 million should be declared invalid due to their claims that Retail Adventures was trading while insolvent at the time the security was granted.
Separate from Kathmandu, Jan Cameron bought out the retail chain company in 2009 through part of the proceeds she received from the sale of her half-stake in Kathmandu. In early 2013, a company called DSG Holdings Australia, which Cameron also owns, bought Retail Adventures for $58.9 million.
Cameron bought the company for $85 million, and then claims the $77 million in question was pumped into the struggling company before it finally collapsed. She was the sole shareholder of the company at that time of receivership in 2012.
If you're having trouble keeping up with the plot, it gets more complicated. IMF Australia (ASX: IMF), a litigation funder, is attempting to lodge a court application to set aside the DOCA accepted at the start of this week. Paul Rainford, IMF Australia's Investment Manager, said it was making this lodgement on the grounds that "it was unfairly prejudicial to the majority of creditors", and that deed was only passed because of related party votes.
Around 900 votes were cast during the four-hour meeting where Cameron made her argument to have the deed accepted. Around 600 DSG Holdings employees voted for the deed.
If the case of trading while insolvent can be proven, further penalties can be brought against the directors of Retail Adventures.
Other companies have benefited from the voluntary administration include The Reject Shop (ASX: TRS), which was able to pick up some of the 236 store facilities cheaply, and convert them over to its discount sale franchise brand stores. Retail Adventures operated the Clark's, Sam's Warehouse, Chickenfeed and Go-Lo brand stores.
Foolish takeaway
Who knew that retailing could be such an adventure? The whole story will still have to play out in court over several matters. Neither Retail Adventures nor DSG Holdings are publicly listed companies, so share investors will have to be content with only watching the final act unfold — probably safer that way.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
