"I just feel raped."
Max Goldsmith, the man who has spent the last 17 years building up a reputable storage business, has reason to be upset. He's just watched in abject horror as Powerlan last week put the shell of his former company XSI into voluntary administration. Although Goldsmith would not be drawn on how much XSI owed creditors, some of whom have become close personal friends, ARN estimates it to be around $600,000.
"It's the most cynical, nasty thing you can imagine," Goldsmith told ARN. "It's probably legal but it's just so immoral."
DVT Holdings purchased XSI from Powerlan for $4.6 million in May. Under the terms of the agreement, DVT acquired XSI's stock, property, plant and equipment, select debtors, intellectual property, contracts and goodwill. It also assumed the liabilities of certain employee entitlements and future service commitments under maintenance contracts.
Besides a long-established player in the storage integration business, the sale provided DVT with a pipeline of $800,000 worth of contracts, which was to be paid in part to Powerlan over an earn-out period. The agreement, according to Goldsmith (who joined DVT as part of the sale), was that with the cash sale and earn-out revenues Powerlan would pay off XSI's remaining creditors, a number of which are long-established distributors.
But this didn't happen.
Instead, Powerlan took its remaining XSI business - a business that by this stage was based on paper and creditors' invoices only - and handed it over to administrator F.B. Kershaw of KPMG.
With it went the goodwill and reputable name of the company, according to one creditor in contact with ARN, who wished to remain nameless. "This really stinks," he said.
Powerlan purchased privately held XSI in April 2000 and the company provided Powerlan with profits in the vicinity of $1.5 million-$1.7 million per year, according to Goldsmith.
A big factor in XSI's success was its long-standing reputation as a solid dependable company, said the creditor. Goldsmith was fielding calls throughout last week when creditors were notified of Powerlan's decision to appoint an administrator. "What hurts me so much is that [XSI has] dealt with these people, some of whom have become close personal friends, for 17 years. To do this to the people that have supported the business is just wrong," Goldsmith said. "He [Theo Baker, MD of Powerlan] wouldn't have gotten a bean for the company if it wasn't for the support of all these people.
"I'm livid and wondering how people can look themselves in the mirror and live with themselves," Goldsmith continued.
DVT, which is currently undergoing a reverse acquisition by Utility Services Corporation (USC), is considering legal action over breach of contract based on the perceived goodwill of the XSI brand now allegedly sullied in the industry by the administration process.
Given XSI's history, its reputation and yearly profits, goodwill is a valuable asset. So much so that USC was looking to drop the e-Data Group name (the operating business of DVT Holdings) and brand its whole storage integration subsidiary as XSI.
"This will kill it," said Goldsmith.
The thought of thrashing this debate out in the courts also makes him despondent. "What's the point, who's going to pay for it? Powerlan?"
Baker told ARN he couldn't comment on any issues surrounding the administration process.