How 2nds World become Harvey Norman 2nds World?


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How 2nds World become Harvey Norman 2nds World?

History

The 2nds world brand has been a well-known, long standing brand for over 20 years.  It started with a 200sqm store in Cremorne and became the largest provider of seconds whitegoods in Sydney.  It will always be remembered with affection and fond memories playing an important role in providing a great low-cost solution to furnish homes for new homemakers.

It was unfortunate that after struggling with significant unprofitable trading, failed expansion into Melbourne, inadequate working capital to sustain the required inventory levels, inaccurate record keeping and poor management decisions that the Company found themselves in deep distress.

In April this year, the Company came to us (dVT Group) in a very difficult financial position.   An analysis of their situation revealed that:

  • There were no assets to speak of as even the shop premises were leasehold
  • All stock was subject to secured interests – pledged to somebody else with GSA (General Security Agreements) on all assets
  • There were monthly obligations of $220k for rent and $400k for wages etc
  • The fixtures, fittings etc. were fixed & considered part of the premises, benefiting the landlord
  • There was negligible money in the bank

On 15th April 2019, dVT Group were appointed as Administrators of the company.  The above position meant that we did not have much immediate value to deal with, and it became evident that it would be very difficult to continue to trade on.  To add to this, as Administrators we became personally liable for all authorised liabilities going forward.

Overcoming the challenges:   

After spending time to obtain a complete picture, our team assessed all possible options and came up with a strategy that involved:

  1. Expression of Interest: Within 3 days, we had placed an advertisement in Australian Finance Review looking for expressions of interest to purchase 2nds World;
  2. Obtaining Court Orders: we prepared and lodged an application to the Court to obtain “declaratory orders” to extend the Administrator’s rent-free period.
  3. Overcoming the stock war: These Orders also provided relief by giving us the right to sell the stock, notwithstanding the multiple pledges.  This allowed us to use the proceeds to pay for legal fees, valuation costs, insurance etc., with any residual funds going to suppliers who had secured interests in the stock.
  4. Assisting the Employees: With the view of aiming to get the best outcome for all stakeholders, we allocated a team to assist employees with the process of getting their employee entitlements.

What contributed to being successful:

We were very proud of how our team came together and approached the challenges with a determination to succeed, despite the difficult starting position.  We felt that these factors contributed to achieving a great outcome:

  1. Speed: we moved quickly to understand the position and issues and came up with a plan to avoid multiple claims over the stock by creditors.  This proved that Administrators can deal with secured assets if you are able to get the appropriate direction from the Courts.
  2. Working relationship with the Court: our collaborative approach paid off as the Court was willing to work with us, as a trusted practitioner.  We worked together to get an understanding of the situation and come up with an effective solution.  This was achieved within 5 days from being appointed as Administrators.
  3. Engaging all stakeholders: another factor that helped work through this difficult situation was that we involved and invited the affected parties (including the landlords and secured stock suppliers) to come along and engage in face to face meetings.  We had a lawyer come along to Court representing a number of creditors.
  4. Dealing with the landlords: Our above actions also overcame the possible situation of the landlords locking us out of the premises and claiming a lien to the stock on the premises.  The landlords could have taken this action as compensation for the rent that had not been paid!   Our quick actions also helped the landlords by freeing up their premises, allowing new rental agreements to be secured.
  5. Being proactive: while working through the above immediate concerns and challenges, we also had a separate team assisting the employees, by starting the process of completing FEG documentation.  This was done while the company was still in limited trading, and in the likely event that the company was going from a VA (Voluntary Administration) into Liquidation.

The result: 

In summary, we saved the 2nds World brand and achieved a great result for all stakeholders by moving quickly to understand the issues and overcome challenges, being proactive and devising a plan that was legally innovative and that considered all parties involved.

Negotiations were fast and successful and after an extensive marketing campaign, we were able to consummate the sale with Harvey Norman to carry on this iconic brand.  It was a great fit as it compliments Harvey Norman’s existing brand and positioning.

As well as helping employees with obtaining their entitlements, we were also able to secure employment for some of the employees on a casual basis and others were employed by Harvey Norman on a full-time basis.

The dVT Group are continuing with investigations and action to ensure possible settlements, preferences and unfair loans are dealt with on behalf of all stakeholders and creditors as part of the liquidation.

Lessons to share:

We share some of the lessons or points that may help either yourself, or someone you know in a similar position:

  1. Don’t delay, get help as soon as you can, it is important to move quickly!
  2. Ensure you engage a professional who has the technical and strategic skills to devise an effective and successful strategy, ideally engaging professionals who understand the dynamics of retail and all its elements
  3. Carefully review all security documentation including Purchase Money Security Interest (PMSI), ensuring that they are lodged correctly, that there are no mistakes or omissions and that it is  valid.  dVT Group can help review and amend PMSI documentation to avoid issues down the track.

In summary, there are always warning signs of a business struggling.  If you are a business owner or a professional that deals with business owners, be aware of these signs and seek professional advice as early as possible to benefit from more options to overcome challenges and achieve the best result possible.    

Should you or one of your clients need similar help or would just like to chat to us, please call Mark Robinson or one of our partners on 02 9633 3333, email mail@dvtgroup.com.au or complete our online contact form to find out more about how we can help you.

dVT Group is a business advisory firm that specialise in business turnaround, insolvency (both corporate and personal), forensic services and business strategy support.