Deloitte steps in as HMV collapses

Administrators from Deloitte will step in to help the struggling high street music retailer HMV after it confirmed it was unable to continue to trade outside of an insolvency process.

As predicted by AccountingWEB members over the last year, the company announced that insolvency was imminent, but that the administrators would continue to trade the business while it sought a buyer.

Deloitte partners Nick Edwards, Neville Kahn and Rob Harding have been lined up to act as administrators of the company and some of its subsidiaries.

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Comments
Glennzy's picture

Apparently a company spokesman said    4 thanks

Glennzy | | Permalink

That this year the company had shown the worst trading figures since RECORDS began.

I'll get me coat.

Not redeeming gift vouchers    1 thanks

callan.dick | | Permalink

It is reported that HMV gift vouchers, most of them doubtless given as Christmas presents, will not be honoured. Now the Directors will have known the situation before Christmas, as probably did the administrator. Of course the administrator has no legal responsibility until the date of appointment, and the Directors have none after that. So the directors can say they didn't know the vouchers wouldn't be valid, and the Administrator can say the decision was only taken after appointment, and both can deny responsibility.

However, the same thing happened with Comet, also administered by Deloitte, so it could have been predicted. In that case the decision was reversed and vouchers were accepted. Will the same happen with HMV?

If not, the bottom line is that somebody knew that these vouchers were being sold with virtualy no chance of them being redeemable only three weeks later. There are no doubt nice legalistic firewalls between all the parties, but is this not tantamount to fraudulent trading?

Hearts007's picture

Deloites are appauling    2 thanks

Hearts007 | | Permalink

Deloites are appauling administrators.  I could name companies they have dealt with these last few years. It takes them years to solve simple issues.  Then again they are well paid for their efforts.  Hope the proper authorities step in.

Paul Cleverley's picture

Not redeeming gift vouchers    1 thanks

Paul Cleverley | | Permalink

callan.dick wrote:

It is reported that HMV gift vouchers, most of them doubtless given as Christmas presents, will not be honoured. Now the Directors will have known the situation before Christmas, as probably did the administrator. Of course the administrator has no legal responsibility until the date of appointment, and the Directors have none after that. So the directors can say they didn't know the vouchers wouldn't be valid, and the Administrator can say the decision was only taken after appointment, and both can deny responsibility.

However, the same thing happened with Comet, also administered by Deloitte, so it could have been predicted. In that case the decision was reversed and vouchers were accepted. Will the same happen with HMV?

If not, the bottom line is that somebody knew that these vouchers were being sold with virtualy no chance of them being redeemable only three weeks later. There are no doubt nice legalistic firewalls between all the parties, but is this not tantamount to fraudulent trading?

Selling an item that you know you can't deliver. Called fraud?

JAADAMS's picture

Directors are supposed to know better....

JAADAMS | | Permalink

....and for fraud you need to prove intent.

As my article on Directors Duties states

...‘http://www.accountingweb.co.uk/topic/tax/directors-duties-get-details-right/499863

The Insolvency Act 1986 allows proceedings to be brought against the company’s directors if they knew or ought to have known that the company was insolvent or the company was trading fraudulently with intent to defraud creditors. The directors may be ordered to make such contribution to the company’s assets as the Court thinks fit.

Wrongful Trading is what you mean here I think. This occurs when further liabilities are incurred at a time when a director knew or ought to have known that the company was already insolvent and there was no reasonable prospect that the company could carry on and  not go into liquidation.

It’s only the Liquidators who can apply to court to pursue the directors.

Both remedies are much bandied about but are rarely used in practice.

As’ The Inhouse Lawyer’ website states  'although new to English law in 1986, the concept of wrongful trading has not resulted in a plethora of cases against directors reaching court’

 

 

Constantly Confused's picture

There goes Blockbusters

Constantly Confused | | Permalink

Another one down.  W H Smiths next?

sue scherzo's picture

closures HMV

sue scherzo | | Permalink

when did Board cease to take salaries???

Steve-EBL's picture

December sales    1 thanks

Steve-EBL | | Permalink

I guess the directors thought it feasible that a buyoant december could keep them from breaching their covenant.

This administration could have been avoided if the directors were not foolish enough to have paid a £27m dividend in 2011, and paying over the top for disposal costs of Waterstones/HMV Canada ~£7m.

 

Re vouchers

brianheg | | Permalink

The Administrator will be required to investigate the circumstances leading up to the appointment and report on any issues which may give rise to disqualification proceedings. Acceptance of customer deposits is a potential matter for criticism, but only usually if the directors know (or ought to know) that the company is insolvent or have been advised that insolvency is inevitable. Ditto for wrongful trading i.e. trading while insolvent under s214 of the Insolvency Act.

Even where there is knowledge of looming insolvency, s214(3) of the Insolvency Act provides a defence for directors where they have taken "every step with a view to minimising the potential loss to the company's creditors", which can include steps taken outside of an Administrator appointment. 

Fraudulent trading is a criminal matter but very difficult to prove as there has to be an intent to defraud creditors.

The Administrator on appointment has a legal duty to avoid preferring creditors. All gift voucher holders are creditors, and if the Administrators honoured the vouchers they would potentially expose themselves to a claim for misfeasance from other creditors of the company. As you say, the Administrators have no control prior to their appointment - they can only advise.

HMV    1 thanks

windsorherb | | Permalink

Another death due to "investors" raping the assets of the subject of a take over - politely called hedge funds and private funding

Any bets?

P.J.and Co | | Permalink

Any bets on M&S going the same way before the end of the year?

 

HMV    1 thanks

Senoji | | Permalink

I was working for a company with shops nationwide.In London they were paying rates of £98000 and rent of £360000 for one shop, no wonder these places are going bust.Most of them rely on the Christmas sales to keep them going for the year.It's been a poor Christmas for retailers hence we're seeing these companies realising they've had it in January.

What a fatuous statement by Chris Ratten (Tenon)...

JC | | Permalink

'.. Chris Ratten, head of restructuring at RSM Tenon, said HMV had shown signs of distress for many months and that the news was not unexpected.

“Increased online competition and the increase of music downloads has caused HMV to be the latest victim. Those retailers who are able to forecast and adapt quickly to customers’ demands and manage their cost base effectively will be those who survive and be successful.” ''.

This situation has been declining for many years and not simply months. Also it is far too simplistic / light weight to blame it entirely on on-line & music downloads; although it probably makes a good sound-bite

http://www.accountingweb.co.uk/blog-post/electrons-or-atoms-future-retai...
 

Steve-EBL's picture

M&S

Steve-EBL | | Permalink

M&S is too british to fail.