‘Bring It!’ says Cheadle, But SurfStitch Administrators Still Unmoved

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By Published On: April 3, 20180 Comments

Despite lacking support from Administrators, Abigail Cheadle is confident in the turnaround plans for SurfStitch: "The investors need to think about whether or not they want a piece of that action," Abigail Cheadle tells us.

A week after SurfStitch Administrators recommended that creditors vote in support of the Deed of Company Arrangement (DOCA) put forward by Alceon via its EziBuy Subsidiary, non-executive director of SurfStitch Group, Abigail Cheadle, submitted a revised DOCA proposal in a last minute bid to gain shareholder and creditor support.

Tomorrow, Thursday 4 April, creditors will choose between these two DOCAs. While trade creditors and employees will be paid in cash under both proposals, the EziBuy proposal will see the business sold in return for three-year convertible notes issued by the purchaser, while Cheadle’s will see a debt for equity restructure and later relisting.

“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 today. “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.”

Abigail Cheadle

“They’re also offering whatever’s left out of the waterfall after creditors are paid and after the administrators are paid,” Cheadle adds. “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.”

Despite this, the Administrators’ opinion on the future of the Companies remains unchanged, as per the Second Supplementary Report to Creditors released today: “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.

In terms of SurfStitch’s future, Cheadle has a clear plan. Consolidation for six months and getting back trade terms with merchant facility providers and suppliers as soon as the administration passes. “This should be very easy because we’re out of that risk,” Cheadle tells us. “We can show them our balance sheet which is very strong and has been recapitalised. We’ve got a new board run by Tony Nash and Leonie Henzell who are two leaders in growing and building e-commerce retail businesses.”

Cheadle also has a strong long-term view: “Once we’ve got everything back to business, we will then start working on our strategy for building the business, which is leveraging on this wonderful platform we now have, where we can open up in any country, surf, snow, skate….Wherever there’s a hole in the market we can go fill it. We don’t have to go and buy a competitor anymore. We can virtually open up over night if there’s a business case to do so.…It’s about leveraging our fulfilment and what we do best. It’s about getting back the brand.”

Surf Stitch is just one of the many Australian businesses entering administration or struggling in recent times. Yet Cheadle is confident in a turnaround. “Temple & Webster has had challenges as well and is valued at $60 million or something market cap and the same top line revenue [as Surf Stitch]. The investors need to think about whether or not they want a piece of that action.”

What are Cheadle’s hopes ahead of the second creditors’ meeting tomorrow? “Just that I hope it’s run objectively and fairly and everyone gets the opportunity to talk about their proposals and the creditors get the best chance to determine what’s best for the company.”

“My whole objective in this is to get the best offer for the company,” Cheadle says. “So, if my offer isn’t the best, and I think it is, why can’t EziBuy improve their offer? Why don’t they bring it? Bring it! Improve it!”

SurfStitch originally collapsed after a dud deal to buy assets from TCI Group caused profit downgrades, legal battles and class actions. However, the administrators found that SurfStitch Group and SurfStitch Holdings (the Companies) were solvent at all times prior to their appointment in August 2017. Cheadle was the only director to abstain from voting on the Administration

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