SurfStitch calls in administrators

Troubled online sports retailer SurfStitch has called in administrators to its listed and holding companies, citing “significant, external challenges” including two class actions and an investigation by the corporate regulator.

“These challenges each bring high levels of uncertainty and material costs that are entirely outside the control of the group operational businesses,” SurfStitch said in a statement to the ASX.

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“These have had, and will continue to have, an adverse impact on the companies’ cash flow position.”

SurfStitch’s operating businesses are not subject to the administration and will trade as usual.

SurfStitch shares have been suspended since late May while the company considered the implications of a $100 million class action launched by aggrieved shareholders. Law firm Quinn Emanuel is running the class action on behalf of shareholders whose investments were largely wiped out by the dramatic drop in SurfStitch’s share price following a series of earnings downgrades last year.

SurfStitch listed at $1 in late 2014 and was trading at a record high of $2.09 in November 2015. It shares had fallen 90 per cent to 22¢ by June 2016 following three profit warnings. The stock closed at 6.8¢ before being suspended.

Mike Sonand became CEO in June with a promise to restore profitability this year and improve returns for long-suffering shareholders.

Chairman Sam Weiss on Thursday said: “The appointment of administrators at this time is necessary as we seek to put the business on a sustainable footing for the future and remove uncertainties at the listed and holding company level, without impacting on business as usual at the subsidiary operating level.”

The administrator, FTI Consulting’s John Park, on Thursday said the legal proceedings against SurfStitch would be stayed following its appointment, giving the group “breathing space” to focus on trading during the peak December period.

SurfStitch said it would assist administrators would investigate the potential for a restructure and recapitalisation of the operating companies.

A creditors’ meeting is expected to be held on September 5.

The surfwear company has been in turmoil since Justin Cameron, its co-founder and CEO, unexpectedly quit the business in March last year to weigh up a privatisation bid.

As well as two class actions, 5 per cent shareholder Crown Financial has taken legation action against SurfStitch over content sharing deals. The Australian Securities and Investments Commission is also investigating Surfstitch’s disclosures in connection with the content sharing deals.

More to come   

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