Anomalies and failed sally herald end of pretender's reign
THE company behind Toy Kingdom, one of Australia's largest toy store retailers, is in liquidation following allegations of accounting irregularities and a failed attempt to strike a deal with rival Toyworld.
THE company behind Toy Kingdom, one of Australia's largest toy store retailers, is in liquidation following allegations of accounting irregularities and a failed attempt to strike a deal with rival Toyworld.Stores in the group are independently owned and some intend to continue trading. But the buying and marketing group owned by the stores is holding a clearance sale at the company's Dandenong South warehouse and is expected to close its doors this weekend.Among creditors are National Australia Bank, toy makers Hasbro and Mattel, and the store owners, whose shareholding in the company is now likely to be worthless.The collapse of the group comes during a difficult time for the sector, with traditional toys falling out of favour with consumers and department stores taking market share from dedicated sellers. Toy distributor Funtastic, another of Toy Kingdom's unsecured creditors, is also in difficulty after inventory management problems last year and the recent failure of talks with a private equity-lead consortium.The problems at Toy Kingdom emerged in February, when the board first noticed accounting irregularities. An independent assessment of the accounts revealed that stock had been booked at the selling price rather than the price at which it was bought, debts stretching back as far as eight years had not been written off, and security deposits paid by member stores had not been recorded as a liability.The anomalies led to the net asset position being as much as $2 million worse than the accounts showed and the company's slender profit would in fact have been a loss, according to a later report from the company's administrators lodged with the Australian Securities and Investments Commission.Such were the irregularities that the board believed if the true state of the company's books were known, the company's banker, NAB, would immediately have withdrawn all banking facilities.In late May, the company appointed Gary Fettes and Geoffrey Handberg from Rodgers Reidy to act as administrators, with the intention of taking up a deal proposed by Associated Retailers, the buying group behind Toyworld, for Toy Kingdom stores to join it. In exchange, ARL offered to buy Toy Kingdom stock but required stores joining it to pay off debts they owed to Toy Kingdom.According to advice the administrators gave to a meeting of creditors, this outcome could have led to NAB getting 100 in the dollar as a secured creditor, and unsecured creditors, who were mostly toy suppliers, up to 60 in the dollar.In their report, the administrators said that ARL's ability to keep Toy Kingdom's supplier creditors at bay made it a vital part of any attempt to avoid liquidation. "Without ARL's influence, it was likely that suppliers would attempt to reclaim their stock from stores, and that stores would be unlikely/unwilling to pay their debts to Toy Kingdom in full," the report said.But NAB is believed to have had doubts that the outcome was achievable and queried the bona fides of ARL. In early June, it appointed receivers Stephen Longley and David McEvoy of PricewaterhouseCoopers, effectively killing off any chance of a deal with ARL, much to the chagrin of the store owners.With that option off the table, the company's creditors voted to wind up the company three weeks later.Stock once bound for the retail stores is now being sold off at a clearance sale at a big discount. Grays Asset Services valued the stock at $1.5 million, so it is unlikely NAB will get anything like the $3.6 million it is owed."The feeling I had was that NAB didn't want to be pushed around," said a Toy Kingdom director. "They wanted to be the ones calling the shots but, in the end, it backfired on them."Despite the failure of the group deal, ARL has managed to win over about 30 of the largest Toy Kingdom stores to its group. Most will change their name to Toyworld stores early next year, although those with an existing Toyworld store nearby will remain as Toy Kingdom.As for the other Toy Kingdom stores, many were part of mixed businesses with a turnover of less than $100,000 and are unlikely to continue trading; while some are considering becoming part of a separate buying group. With IAN McILWRAITH
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