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The Business Herald’s markets and banking reporter.

Dick Smith creditors face $270m shortfall

Dick Smith collapsed in January and has now closed the more than 360 stores it operated on both sides of the Tasman. Photo / Nick Reed
Dick Smith collapsed in January and has now closed the more than 360 stores it operated on both sides of the Tasman. Photo / Nick Reed

Dick Smith creditors are expected to face a shortfall of more than $270 million, the administrators of the failed electronics chain said today.

McGrathNicol also said secured banks - which include HSBC and National Australia Bank - would only receive a partial return on the A$140 million they are owed.

Dick Smith collapsed in January and has now closed the more than 390 stores it operated on both sides of the Tasman.

More than 3000 workers lost their jobs - 430 of them in New Zealand.

In a report released today, McGrathNicol said the ultimate outcome of the administration was likely to be a shortfall to creditors of A$260 million ($272 million).

"The secured banks would receive a partial return on their exposure, but there is little prospect of any return to unsecured creditors," said administrator Joe Hayes.

Gift card holders were among the chain's unsecured creditors.

Shareholders in Dick Smith - which listed on the ASX in 2013 in a float that delivered a huge return to its former private equity owner, Anchorage Capital - are not expected to recoup any funds.

Employee benefits were paid in full, the administrators said.

The report said Dick Smith struggled to compete in a fast-moving sector, where customer preferences change rapidly.

Expansion plans and store growth consumed surplus earnings and sparked large-scale borrowing.

"These expansion plans went unchecked during early to mid-2015, and major inventory purchasing decisions meant Dick Smith was carrying too much stock that was not saleable and was overvalue," Hayes said.

"By December 2015, a rapid clearance sale was needed at a time the business should have been achieving strong margins. However, cash receipts were simply insufficient to meet commitments."

A creditors' meeting will be held in Sydney on July 25.

- NZ Herald

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