The online clothing retailer SurfStitch has gone into administration.
The company says the business faces several significant challenges including two class actions, protracted litigation and investigation by the corporate regulator ASIC.
SurfStitch’s businesses will continue to trade.
The business, started in 2007 by two surfing buddies from Sydney’s northern beaches, Lex Pedersen and Justin Cameron, listed on the ASX in late 2014 at $1.00 per share and hit a high of $2.13 a year later. The shares last traded at 6.8 cents.
The company had been in a voluntary trading halt working on a possible complicated negotiated settlement to a class action alleging the company was trading at a loss when it announced in 2015 that it was expecting earnings to double in the 2016 year.
Separate class actions have been launched in the Supreme Courts of Queensland and New South Wales.
The potential damages could be as high as $100 million, dwarfing the market cap of about $19 million.
SurfStitch had been working to stem losses from the business and was looking at sales of its media assets and the potential to offload other assets.
The company found that the integration of a string of acquired businesses has been slower than anticipated and the benefits lower than expected.
In April, SurfStitch sold action and extreme sport video business Garage Entertainment to the Madman Media Group for a loss. SurfStitch in 2015 paid $15 million in cash and shares for Garage and its assets including the acclaimed Australian documentary Bra Boys.
In December last year, SurfStitch sold its surfboard subsidiary Surf Hardware International at a loss to investment company Gowing Bros Ltd for $17 million. The company company says the business it bought 12 months ago for $23.7 million wasn’t a good strategic fit.
And the company has announced profit downgrades, saying the retail environment has made it difficult to deliver the planned sales and gross margin improvements as quickly as expected.
Surfstitch’s management was restructured after the surprise departure of CEO and co-founder Justin Cameron in March last year. The company then said it understood Cameron was pursuing a potential acquisition of the business in conjunction with private equity. There has been no news since.
John Park, Quentin Olde and Joseph Hansell of FTI Consulting have been appointed administrators.
Chairman, Sam Weiss said: “Today’s decision reflects the exceptional circumstances that have impacted the SurfStitch Group for well over a year. The appointment of administrators to the listed and holding entities will allow our operating companies to focus solely on trade and the provision of a rewarding experience for our customers going into the critical December peak period.”
John Park, of FTI Consulting, says the administrators will work closely with the operating businesses to preserve value for stakeholders.
“The legal proceedings against the Non-Operating SurfStitch Companies will be stayed following the appointments, which will provide the Group with breathing space to focus on trading into the critical December peak period,” he says.
“The administrators will investigate the potential for a recapitalisation of the Non-Operating SurfStitch Companies with the intention of securing a better outcome for stakeholders.”
The administrators will give an update on progress at a creditors meeting on Tuesday, September 5.
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