E-Store administrator stirs the can of worms

E-Store administrator stirs the can of worms

E-Store administrators Dean Willcocks and Ian Purchas have recommended creditors of the troubled dotcom vote to keep it afloat, despite uncovering a multitude of legal and financial stumbling blocks on E-Store's books.

Arguing that continuing to trade is possible, the administrator has proposed a deed-of-company arrangement in the hope that creditors will keep the business afloat when they vote on its future on Tuesday.

In trying to find some backing for the continuation of the E-Store business, the administrator will present a report to creditors that also highlights several grey areas in the company's records.

The report to creditors said there are several factors potentially indicating E-Store may have traded while insolvent, but said it was up to the courts to confirm if such offences were committed.

The administrator's investigation uncovered that earlier this year E-Store was engaged in several financial transactions that may now be "voidable". That is, these transactions were made before whatever date a court may decide the company had become insolvent.

One such transaction was a group of three payments E-Store made to IT distributor Tech Pacific as part of a disputed debt. Tech Pacific claimed the e-tailer owed it $1.1 million, while E-Store's records showed a debt of less that $500,000. The two companies settled on a payment of $593,250.

Another transaction being looked at was a loan repayment E-Store made to former director Adam Power, who resigned from the company at the end of August. It is understood Power's employer at the time, ZDNet, disapproved of his involvement in the dotcom. Power had loaned $120,000 to E-Store in August 2001, of which $70,000 was paid back in September and the balance paid back the day before Star Dean-Willcocks was appointed as administrator.

If a court were to find E-Store was trading while insolvent, this transaction would be scrutinised to ascertain whether unfair preference toward one creditor was given over others.

The administrator also identified several possible offences for which the directors of E-Store may be held accountable.

Among these is the possibility of fraud charges for over $160,000 worth of unfulfilled customer orders from the E-Store site. These orders were paid for but not delivered, just prior to E-Store's administration.

While its investigations document problems brewing behind the scenes at the e-tailer, the administrator recommends against both liquidation and legal action.

With support from suppliers and creditors, joint administrator, Ian Purchas said there is potential to keep the company afloat. Litigation, which would cost the creditors anywhere between $20,000 and $100,000, would not produce any great financial gain for the creditors, who would be attempting to retrieve funds from two directors and one former director that are all struggling with their own finances.

With that in mind, the administrator is hoping creditors will allow the e-tailer to continue operating while it negotiates sale agreements with as many as 12 interested parties.

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