Roughly 2,500 customers who purchased from collapsed furniture brand Brosa are unlikely to see ever their orders despite the company’s assets being snapped up by e-commerce giant Kogan (ASX: KGN) for $1.5 million last year.
The news comes one month after Richard Tucker and Michael Korda of KordaMentha were appointed as voluntary administrators for Brosa, receiving more than 40 expressions of interest.
Funded from cash reserves, Kogan's acquisition covers Brosa’s intellectual property, goodwill and stock, but excludes all leases and other liabilities.
Of the estimated 5,000 unfulfilled orders on Brosa's books, worth approximately $10 million, administrators believe only half will be mailed out by Kogan as "allocated stock" while the other half will probably never be sent to customers due to Brosa's unpaid invoices to manufacturers.
While affected customers with "unallocated" stock can apply to become unsecured creditors, it is not likely they will see any cash back for their orders unless funding is arranged to appoint a liquidator to commence further investigations.
Under insolvency law, administrators must recommend one of three options for creditors to consider at their second meeting – an offer of a Deed of Company Arrangement (DOCA) to keep the business going, a return of the company to its directors, or a liquidation for an orderly winding up of the business.
Since no DOCA has been proposed and it is commercially unviable to return the company to its directors as there is no cash, administrators are recommending liquidation for Brosa, which had assets of $4.3 million and liabilities of $24.2 million when the administration was announced.
“Whilst employees should receive their full entitlements, unfortunately there is no return for unsecured creditors including customers whose orders have not been located in the warehouses,” Tucker said.
“With limited cash to trade the business and material amounts owed to suppliers and couriers, there will be some customers who will not receive their orders.
“We understand the extreme frustration for those impacted, however the administrators have no means to acquire these goods or deliver them as there are insufficient funds to do so.”
One impacted customer, who asked to remain anonymous, reached out to Business News Australia and alleged that KordaMentha left her in the lurch without an option to receive furniture she ordered or any sort of refund.
"They are not making any effort to get the third parties to release our furniture to us, despite being paid in full. Not only that, but nobody from any of the involved parties will speak to us. Brosa and Kogan don't have phone numbers and the only emails we get are automated," the affected customer alleged.
Founded in 2014 by David Wei and Ivan Lim, Brosa – which means ‘smile’ in Icelandic – fell into voluntary administration when sales dropped after COVID-19 restrictions were relaxed.
The company aimed to provide luxury furniture without the mark-ups normally associated with the costs of wholesaling and importing, and also allowed designers to manufacture and sell homeware directly to consumers.
According to KordaMentha’s administrator's report, Brosa did not have a positive EBITDA in any of the three full financial years prior to entering voluntary administration, running at a loss of $3.4 million in FY20, $3.2 million in FY21 and $8.3 million in FY22.
“The offer of $1.5 million from Kogan.com was materially better for stakeholders overall than the next best offer, particularly given it included a solution for about 2,500 customers who had paid for goods which were identified in the Brosa warehouses who would otherwise not have received their items,” Tucker said.
“For these customers, Kogan.com has assumed responsibility for delivery of their goods (however can charge a reasonable fee to do so) or provision of a store credit available to be used on any item sold on Kogan.com which will be selling Brosa products in addition to Brosa.com.au. Kogan is currently working through this process.”
In an update to shareholders today, Kogan announced it has made significant headway in selling-off excess inventory despite sales slumping by 32.5 per cent to $471.1 million year-on-year.
In-warehouse inventories were reduced by 39 per cent to $84.1 million since 30 June 2022, supporting growth net in cash to $74 million after having funded the Mighty Ape tranche three payment of $14.2 million and the acquisition of Brosa.
The December half also saw Kogan First membership grow 47. 6 per cent year-on-year to 404,512 as at 31 December 2022.
“Since Kogan.com launched out of a garage in 2006, we’ve been obsessed with making the most in-demand products and services more affordable. We are proud to be making that possible for our millions of customers and the growing base of loyal Kogan First Subscribers,” Kogan.com founder and CEO Ruslan Kogan said.
“We are also proud and excited to have added Brosa to the Kogan Group, expanding our share of the online furniture retail market.
“Along with our acquisition, we are now looking forward to welcoming, delighting and delivering great value to the 500,000 Brosa customers, as we relaunch the brand in the second half of the financial year.”
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