SURFSTITCH GOES UNDER AS LEGAL COSTS FINALLY TAKE THEIR TOLL
Written on the 24 August 2017 by Paris Faint
SurfStitch (ASX: SRF) has entered voluntary administration, impacted by a series of protracted legal entanglements and investigations into the retailer's heavy loss-making activities.
John Park, Quentin Olde and Joseph Hansell of FTI Consulting will immediately take over as administrators of SurfStitch Group Limited as well as SurfStitch Holdings, which are being called the non-operating SurfStitch companies.
However, the Group's five subsidiaries which are being called the 'operating companies' will continue to trade as normal for now.
These subsidiaries include SurfDome Shop (UK), MagicSeaweed (UK), Swell (US), Stab (AUS & US) as well as the SurfStitch Pty Ltd brand in Australia.
SurfStitch revealed it was reluctant to enlist administrators while it continued to defend two class action lawsuits and endure the probes of an ASIC investigation which has "brought high levels of uncertainty impacting the companies' trading position".
John Park of FTI Consulting said legal proceedings against the non-operating SurfStitch companies will halt for the time being, giving the company a chance to focus on end-of-year operations.
"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," said Park.
"The administrators will provide a high level update on the progress of the administration and strategy moving forward at a creditors meeting expected to be held on Tuesday, 5 September 2017."
SurfStitch entered the ASX as a market favourite in 2014, however it has since suffered a spectacular fall from grace which has wiped almost 93 per cent off its total market value.
In 2016 and 2017, the fallout from a failed content sharing deal with its subsidiary Three Crowns Media Group resulted in a major share price wipeout.
The company downgraded its earnings three times, largely because of a dispute with surf technology group Coastalwatch and Crown Financial over the licencing deals which fell through, and this wiped around $20 million off revenues.
In the months leading up to today's collapse, Surfstitch was facing severe cost pressures from a complex mix of legal proceedings, an ASIC investigation and separate class actions.
The market capitalisation of Surfstitch has fallen rapidly from its peak in November 2015 of $590 million to its recent value of $18.9 million.
Since its much-hyped IPO, SurfStitch has endured a series of major setbacks including the acrimonious departure of co-founder and CEO Justin Cameron.
Investors who piled into the IPO at $1.00 a share have suffered a 93 per cent loss, and face the possibility of losing everything.
Business News Australia
Author: Paris Faint