Suppliers say Harris Scarfe stockpiled before collapse
Harris Scarfe dramatically ramped up its ordering of stock before it was tipped into voluntary administration, suppliers have claimed.
Serious concerns about the behaviour of the private equity group that purchased Harris Scarfe shortly before declaring the business insolvent have been aired at the first meeting of creditors.
Minutes from the meeting, held in Melbourne, show unsecured creditors including suppliers and landlords are owed $98 million.
Suppliers have complained Allegro Funds, the private equity group that purchased Harris Scarfe, failed to make a scheduled payment on December 2, the minutes show.
That was the day it formally took control of the business. Allegro put Harris Scarfe into voluntary administration on December 11.
Suppliers have also asked the administrator, accounting firm BDO, to probe whether Allegro received "safe harbour" legal advice before declaring the business insolvent.
The legal provisions, introduced in 2017, provide company directors with protection from insolvency breaches.
Questions raised by suppliers indicate there is serious concern Allegro is using the voluntary administration process to break its lease liabilities and close stores, leaving dozens of suppliers out of pocket along the way.
One supplier, who declined to be named, told Business Daily Harris Scarfe was "ordering like crazy" in the lead-up to it being tipped into administration.
Heavy ordering would not be unusual given the retailer was preparing for the key Christmas trading period, but the supplier said the level of stock requested was considerably larger than in other years.
The minutes record a complaint from a supplier that Harris Scarfe was requesting "substantial volumes of stock" in the period between the completion of Allegro's takeover and the appointment of administrators.
Deloitte Restructuring Services partner Vaughan Strawbridge, who is acting as receiver, told Business Daily he had engaged with several suppliers over their concerns.
Mr Strawbridge said his analysis of the business showed Harris Scarfe had not placed any orders from December 2 onwards, the date Allegro took control.
He also said the level of inventory was not unusually high for the Christmas period when compared with that of previous years.
"That may not be the case for an individual supplier but overall the level of stock was not unusually high," he said.
The collapse of Harris Scarfe is complicated as Allegro is also its key secured creditor, having taken over $70 million in debt when it bought the business.
Being a secured creditor means it will be paid back before unsecured creditors from any money raised during the restructuring and sales process.
It is not clear how much Allegro paid for the debt as part of its deal to buy Harris Scarfe. Allegro directed Business Daily's requests for comment to Deloitte.
Major unsecured creditors include homewares suppliers Linen House and Sheridan and kitchenware suppliers Sheldon & Hammond and Classica Kitchen and Giftware.
Melbourne-based Linen House is owned $3.3 million, Sheldon & Hammond $2 million, Classica $1.2 million and Sheridan $1 million.
Harris Scarfe this week announced it would shut 21 stores - almost one in three - over the next month in a move set to result in more than 400 job losses.
The store closures, including three in Victoria, will reduce the retailer's network to 44 outlets. Deloitte is working to find a buyer for the business.
Allegro bought Harris Scarfe from Freedom and Fantastic Furniture owner Greenlit Brands in a deal that also handed the private equity firm Best & Less. That chain is unaffected by Harris Scarfe's administration.