Administrators appointed to failed Australian retailer Harris Scarfe Holdings Ltd said on Tuesday the company's assets and liabilities had been wrongly stated by at least A$46 million over recent years.
Administrators Lindsay Maxted and Michael Dwyer from KPMG told creditors the role and conduct of senior management "and their apparent assertions that the board were fully aware of the accounting irregularities" required further investigation.
They also said there had been significant interest in the business from potential bidders, but that it was evident a number of Harris Scarfe's 35 stores were unprofitable and that any restructure of the business may require some store closures.
"The group's financial position has been materially overstated for some time," Maxted and Dwyer said in a statement issued in Adelaide to a meeting of creditors.
The statement said it was too early still to comment on the fate of the company, but continued trading was regarded as currently in the best interests of creditors and shareholders.
Harris Scarfe said earlier this month it had appointed voluntary administrators after discovering serious financial irregularities that stretched back up to six years.
Executive chairman Adam Trescowthick, whose family owns about 45 percent of the discount retailer, has said the board had been totally unaware of the irregularities.
The company's largest creditor, Australia and New Zealand Banking Group Ltd , which is owed A$65 million, last week called in receivers and managers.
Dwyer told reporters the administrators had been "dumbfounded" by the amounts by which liabilities had been understated and assets overstated since at least 1996/97.
He said it was "very unusual for adjustments of this size to have occurred over that period of time" but would not be drawn as to why they had been made.
The administrators said a record of certain adjustments, particularly those that related to the overstatement of stock had been maintained by senior management.
"The systematic overstatement of profit has been funded by increased debt, both to the bank and to creditors," they said.
The statement identified A$17.2 million in overstated assets from 1996/97 until January 2001, with A$16.4 million in understated liabilities over the same period.
A further A$12.7 million in adjustments has been identified but the timing not yet determined.
Dwyer said he believed A$46 million was an accurate total to date, but "additional adjustments" were still being found.
Dwyer said interest in the Harris Scarfe assets had come from large corporate retailers and a number of overseas parties, with interest focused mainly on its distribution network.
The company had about 1,100 unsecured creditors with claims ranging from the tens of thousands to the millions of dollars, he said, adding it could be three months before administrators reported back to creditors with likely options.