Sneakerboy, a well-known Australian streetwear retailer, recently announced its collapse, entered voluntary administration, and now faces insolvent liquidation. This affects not only the business and its employees, but has also left hundreds of customers waiting indefinitely for deliveries or refunds. Today we explain how to recover what you are owed, and give you a primer on what to watch out for in voluntary administration and insolvent liquidation.

Recap of the Sneakerboy situation:

Sneakerboy is a well-known Australian streetwear retailer selling high-end footwear and apparel brands. Over the past three years, Sneakerboy’s parent company, Luxury Retail Group, has already faced several winding-up applications. Around March 2021, the Australian Taxation Office (ATO) issued Sneakerboy a claim of up to AUD 1.2 million in unpaid superannuation and tax. In April this year, AMP Pacific Fair, the operator of the Gold Coast’s Pacific Fair shopping centre, also demanded Sneakerboy repay around a year’s worth of unpaid rent.

In early July this year, a finance company formally applied to wind up Sneakerboy and external administrators were appointed, with the company also facing millions of dollars in debt. The Australian Securities and Investments Commission (ASIC) has issued a statement noting that, due to short-term funding difficulties, Sneakerboy would commence the voluntary administration process. Stephen Dixon, one of the principals at insolvency and restructuring firm Hamilton Murphy Advisory, has been appointed as the voluntary administrator. The administrator will assess the ongoing viability and survival of Sneakerboy’s business.

Sneakerboy’s internal staff have complained about not receiving their entitled superannuation. Over recent months, hundreds of customers have also been left waiting indefinitely for orders, with delays dating back to January this year. Customers have flooded Sneakerboy’s online platforms and review sites with complaints — Sneakerboy has repeatedly failed to dispatch orders, and customers have neither received their goods nor any refund.

How can consumers protect their rights?

1. Lodge a Proof of Debt. Under the relevant provisions of Australia’s Bankruptcy Act 1966, consumers have the right to prove to the trustee that they are owed a debt. In Australia, a Proof of Debt is used by creditors to set out information relating to the debt. Consumers need to complete this form and attach supporting evidence, such as the order invoice and related documents.

2. Based on the notice on Sneakerboy’s official website (as shown below), you as a creditor may also contact Hamilton Murphy Advisory by phone or email. “All orders from 2 July 2022 onwards will continue to be fulfilled by the administrators. For all orders placed before 2 July 2022, please contact Hamilton Murphy on (03) 8866 7600.”

What is a creditor?

If a company owes you money, then you are a creditor. A company typically owes you money because:

– You have supplied goods or services to the company

– You have lent money to the company

– You have paid for goods or services you did not receive

– You are an employee who has not received wages or other entitlements.

What is voluntary administration?

Voluntary administration is an insolvency procedure under which an external administrator is appointed because a company is in financial difficulty.

What is the purpose of voluntary administration?

Voluntary administration is aimed at resolving the company’s future. An independent registered liquidator (the voluntary administrator) takes full control of the company, which gives the directors or a third party time to find a way to save the company or its business, where possible. If the directors or a third party cannot put forward a plan to save the company or its business, the voluntary administrator aims to administer the company’s affairs so as to provide a better return to creditors than would be available from an immediate liquidation.

A voluntary administrator is appointed by:

– The company’s directors, after deciding the company is, or is likely to become, insolvent

– A secured creditor holding security over most of the company’s assets

– A liquidator, or

– A provisional liquidator

Note: while a business is in voluntary administration, the Fair Work Ombudsman in Australia can provide advice and investigate entitlements.

What are the role and responsibilities of a voluntary administrator?

The voluntary administrator has all the powers of the company and its directors. Although a voluntary administrator may be appointed by the directors, they must act fairly and impartially. After taking control of the company, the voluntary administrator must investigate the company’s business, property, affairs and financial circumstances, and report to creditors.

They will also report on the following options available to creditors (including employees):

– End the voluntary administration and return the company to the directors’ control;

– Wind up the company and appoint a liquidator; and so on.

During this process, the voluntary administrator will try to:

– Identify possible solutions to the company’s problems

– Assess any proposals put forward for the company’s future

– Compare the likely outcome of any proposal with the likely outcome in a liquidation.

At the end of the administration, the voluntary administrator must lodge a detailed end of administration return with ASIC.

The voluntary administration process:

1. Appointment of the voluntary administrator

2. First meeting of creditors

The voluntary administrator must convene the first meeting of creditors within eight business days of being appointed, unless the court allows an extension. Creditors must be given at least five business days’ notice. At the meeting, creditors may vote to replace the administrator, or form a committee of inspection.

3. Investigation and report by the voluntary administrator

The voluntary administrator must investigate the company’s affairs and report to creditors on the alternatives available.

4. Second meeting of creditors

Unless the court allows an extension, the voluntary administrator must convene a meeting to decide the company’s future within 25 business days of being appointed (30 business days if the appointment is made around Christmas or Easter).

On company liquidation:

If creditors decide that the company should go into liquidation, the voluntary administrator becomes the liquidator, unless creditors vote at the second meeting to appoint a different liquidator of their choice. This is a creditors’ voluntary liquidation, and any dividends are paid to creditors in the order set out in the Corporations Act 2001.

How to tell when a business is insolvent and facing liquidation?

Many businesses end up in insolvent liquidation because the company has been trading while insolvent for a long period. So how can you tell whether a business is insolvent, so that stakeholders can understand the situation in time? Below are some common signs that a business is insolvent:

1. The business is having cash-flow / working-capital problems

2. The business is being pressed by creditors for payment

3. The business has long-standing unpaid wages or superannuation for employees

4. The company’s financial statements show recurring losses

5. Shareholders are using personal funds to keep the business running, and so on.

Finally

Whether due to long-standing issues within the company itself, the impact of the pandemic on the Australian economy and retail sector over the past two years, or reduced consumer spending power, Sneakerboy’s slide into insolvent liquidation now appears to be all but inevitable. We encourage consumers and employees, as creditors, to protect their lawful rights in good time. Whether it is Sneakerboy or any other company, directors should also keep a close eye on how the business is tracking to avoid ending up insolvent. For legal questions around protecting your rights and running a business, we recommend seeking professional legal advice promptly.