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Proposal to relist Surfstitch under review

A party previously involved with Surfstitch has submitted a draft bid to restructure the company, which would see it re-list on the ASX, pending support from a creditor vote in the coming months.

Administrators FTI Consulting, appointed last week, notified creditors of the proposal at a meeting in Sydney on Tuesday morning, but FTI senior MD John Park declined to say what the response was, other than that the meeting was “quick” and “calm”.

Park would not confirm whether major shareholder and co-founder Justin Cameron was behind the proposal, but said Cameron did not attend the creditor meeting.

“I’ve received one draft deed of company proposal this morning,” Park said. “It’s a proposal to see … a relisting of the vehicle.”

Creditors include management, advisors and the shareholders associated with the Quinn Emanuel Urquhart & Sullivan and Gadens shareholder class actions, as well as Crown Financial’s Kim Sundell, who also has pending legal action against the company.

FTI expects to receive more restructure proposals for the company over the next 30 – 50 days before its due to deliver its report and recommendation to creditors about the future of the business.

Liquidation is still a possibility, although not something that Park believes will deliver an optimal outcome for stakeholders.

“My experience is that creditors look upon a deed of company arrangement a lot more favourably than a liquidation scenario,” he said.

“[Litigators will] be looking for a palatable commercial outcome.”

The administration was undertaken to put a stay on the legal proceedings. Park said a restructure would be the only outcome that would generate a return for shareholders.

“[Litigators] have indicated that they are receptive to looking at some form of restructuring proposal which takes into account their interests and they will assess it on its merits and make a decision,” Park told journalists on Tuesday afternoon.

Park could not quantify what the company owed to creditors, citing the inability to determine the value of the pending legal action.

Quinn Emanuel filed a $100 million class action on behalf of shareholders against SurfStitch in May and was in the process of negotiating a settlement with the company when it entered voluntary administration two weeks ago.

Quinn Emanuel partner Damian Scattini has previously declined to say what size settlement would be acceptable to shareholders, citing – at the time – ongoing negotiations.

Meanwhile, Gadens did not place a specific value on the claim it filed in June, other than to say it would be a “large” claim.

“It’s a bit pointless to pluck figures out of the air. It all depends on how loss is to be calculated. What’s more, we don’t know the full spread of members of the class in order to make that calculation,” Gadens’ Melbourne-based partner, Glenn McGowan, QC, told Internet Retailing last week.

McGowan said he has not been contacted by administrators, except for a standard form letter to prove the claimed debt.

“I imagine they have spoken to the [litigation] funders. But they [the administrators] will have to speak to the lawyers in each proceeding if any agreement is to be reached,” he told Internet Retailing yesterday via email.

However, McGowan has previously said he is pessimistic about shareholders’ chances of recouping losses from Surfstitch. That is why Gadens in June also filed a class action against Cameron, who, like many CEOs, holds an insurance policy.

Surfstitch’s operating subsiduaries continue to trade while the holding company is in administration, Park said there was initial concern from suppliers but that they’d been “pleased” with internal stakeholder response so far.

Internet Retailing contacted Justin Cameron through his legal representation, as well as Vannin Capital, the litigation funder backing the class action through Quinn Emanuel, for comment, but had not received replies at the time of this writing.

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