The retailer may have traded while insolvent for a year and a half

“Furthermore, I have identified that certain members of the management team control the financial functions of the Sneakerboy Group, including the recording of entries into Xero’s management accounts and the preparation and filing of funding applications and statutory documents,” said Dixon.

“It appears that these members of the management team did not have the expertise required to ensure the implementation of financial controls and corporate governance. The financial management of the Sneakerboy Group was likely outside the expertise of the members of the management team, resulting in poor corporate governance and procedures.

High salary costs

Mr Dixon said the company’s Xero management accounts and externally prepared financial statements showed Sneakerboy had racked up business losses from 2020 until the time of its collapse.

“In my opinion, the operating costs of the company, in particular the personnel costs, were high compared to the turnover generated. It would appear that the company did not properly factor these expenses into its profit margins on products sold,” he wrote.

“As a result, the company has been unable to generate sufficient earnings and cash flow to meet the payment of its outstanding business obligations, financing facilities and interest incurred on such facilities on time. applicable.”

Sneakerboy, which sells high-end shoe brands such as Balenciaga for more than $1,000 a pair, had outside administrators appointed by Sydney-based financier Octet Finance in July. Four related entities, including Luxury Retail Group, were also affected.

Mr Dixon said he believed Sneakerboy’s current asset position was significantly overstated and that it did not have enough assets to cover its short-term debt from around December 2020.

Management’s accounts showed a positive net asset position of $6.6 million in December 2020, $7.7 million in December 2021 and $7.3 million in 2022 year-to-date.

However, Mr Dixon concluded that the excess was due to the fact that the fitting out of his leased Sydney flagship store had been recorded as an asset, “which I do not consider to be a salvageable asset”, and that the inventory of the company’s Xero account included pre-purchases and pre-purchases. -stock ordered, overstating the account balance.

“Additionally, the inventory was also recorded in the wrong entity and therefore the financial statements should reflect this,” he said.

Mr Dixon said there were many asset accounts with manual journal entries that were not supported by any supporting documentation.

He also said that if Sneakerboy had recorded the $11.4 million owed to Luxury Retail Treasury, a related entity that also went into administration, the company would have had insufficient assets in all periods it has examined.

Mr Dixon said he believed Sneakerboy did not have enough assets to sell or cash flow to meet its debts from around December 2020. This conclusion was reached due to business losses, significant liabilities and inability to pay debts, including statutory debt payment requirements, reliance on intercompany loans and payment to creditors of amounts not rounded off. not correspond to specific invoices.

“Creditors should note that this is a preliminary view that may change after further inquiries,” Mr. Dixon said.

“A liquidator, if so appointed at the second concurrent meeting, should make further inquiries to determine at what stage the company was incurring debts and whether the directors were aware that the company could not pay them when due or obtain financing to pay the debts and therefore sold the business while it was insolvent.

A second meeting of creditors was delayed for 10 working days last week as a deal to sell Sneakerboy is attempted to be settled.

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