Fate of SurfStitch Decided

At the meeting of creditors today, 63 percent voted in favour of the deed of company arrangement (DOCA) proposed by EziBuy, a subsidiary of private equity firm Alceon Group.

The administration has not been without drama, and included a last ditch attempt by non-executive director of SurfStitch Group, Abigail Cheadle to postpone the vote. But after a three-hour meeting on Wednedsay, Cheadle was left with no further options. The Administrators, FTI consulting, had previously recommended that creditors vote in support of the DOCA put forward by Alceon. Cheadle had also put in a proposal late last year which was not recommended to creditors. In response, a second proposal was put forward by Cheadle last week.

“It remains our opinion that it would be in creditors’ interests for both the Companies to execute a DOCA based on the EziBuy Proposal. The Ezibuy Proposal is superior to the Second Cheadle Group Proposal,” Administrators John Richard Park, Joseph Ronald Hansell and Quentin James Olde of FTI Consulting told creditors prior to the creditors’ meeting.

An hour before the 1pm meeting, Cheadle lodged an enhanced proposal and sought to have the vote adjourned so that the EziBuy offer could be assessed by an independent expert and also so that invalid proxy votes could be included in the final tally.

However, EziBuy had already warned the Administrators that if the meeting was adjourned it would withdraw its proposal. Administrators didn’t allow for an adjournment.

“I’m very relieved and optimistic for the future of employees, shareholders and customers of SurfStitch,” SurfStitch chairman Sam Weiss told The Australian Financial Review.

Under the EziBuy DOCA,  staff and ordinary creditors will be paid in full in six to eight weeks and shareholders and former shareholders signed up to the class action will receive a cash dividend between $3.4 million and $4.3 million from SurfStitch’s funds and will be issued with a convertible note that will convert to shares in EziBuy in three years’ time. Current shareholders will also receive a convertible note that will convert to shares in EziBuy in the event of an IPO or trade sale.

Cheadle had previously questioned the value of the convertible note as well as the strength of the EziBuy offer long-term. “We’re both paying 100 cents in the dollar to creditors. We’re offering the shareholder creditors 60 percent of Surf Stitch. We’re offering the shareholders on the register at the end that aren’t shareholder creditors 10 percent,” Cheadle told Power Retail. “So that’s 70 percent of their company. We have a confirmed, committed $5 million investment that’s coming in…There isn’t any confirmed money coming in from Alceon…Alceon is offering the promise of $15 million worth of share capital in the company in three years time.”

“They’re also offering whatever’s left out of the waterfall after creditors are paid and after the administrators are paid,” Cheadle said yesterday. “The creditors fees could go up. The administrators fees could go up. There are no assurances that that money will be there. They are paying a $200,000 deposit to take over $10m in assets roughly. We’ve got a Creditors’ Trust so they’re held safe until the creditors are paid. I just can’t see how you could ever not vote for our proposal.”

Cheadle hasn’t ruled out challenging the decision. Many supporters of her DOCA weren’t included in the vote for invalidity or lack of proof of debt.

“I’ll be marking my calendar for three years time to see how we all go,” Cheadle said. “My proposal would have delivered a better outcome for the creditors and shareholders and seen the company relisted on the ASX.”

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