Product recall costs put retailer into administration

Costs associated with product recalls put increasing pressure on online furniture retailer Mark Harris Furniture ahead of entering administration.

Geoffrey Rowley and David Shambrook, both of FRP Advisory Trading Limited, were appointed as joint administrators of Mark Harris Furniture Limited, trading as the ‘Great Furniture Trading Company’, ‘Oak Furniture Superstore’ and ‘Thomas Brown Furnishings’, on 21 February 2023.

A year prior to entering administration, the company’s equity was acquired by Quercy in February 2022 and became the parent company. The acquisition, which saw the founder’s part-exit the business, was funded by Triple Point Advancer Leasing (TP), Moulton Goodies Limited and other investors with respective funds of £6m and £4m. This was alongside a founder loan note of £1.4m.

In Q3 2022, the business, which imports dining, bedroom and living room furniture from suppliers in China, Malaysia and Vietnam, underwent a review of suppliers and product certifications. It was discovered that certain products manufactured by one supplier may not have been compliant with UK Fire Regulations. The business continued to trade whilst testing on related products was conducted.

The first phase of product recalls was initiated in October 2022, which incurred costs and refunds to affected customers totalling £3.1m. Following further testing, additional ranges were deemed as non-compliant and were recalled. The company informed Trading Standards that the full costs to complete the product recalls of all affected product ranges could total £20m. (Read more).

Sales for the year ended 2022 declined to £20.5m from £32.2m the previous year, with a loss of £1.6m. The business forecast 2023 revenue growth of £25.9m but losses to slump to £5m due to costs associated with the product recalls.

Subsequently, the founder resigned from the business in October and contract of employment was terminated in December 2022. Quercy, the parent company, and the business issued a letter before claims against the founders in the same month under various heads of loss in connection to the acquisition as the fire related discovery was not disclosed at the time of purchase. Following a short meditation, a settlement was agreed.

In the months that followed, it became clear that administration was necessary and after a marketing period, which saw 31 parties sign non-disclosure agreements with interest in acquiring the business and assets, three offers were tabled. These offers ranged from £500,000 for assets, stock and IP, to just over £1m. The third offer was for £3.7m in the form of a credit bid whereby Moreham Wood Limited, a newco incorporated in January 2023, will assume TP’s remaining indebtedness. This was accepted and the new company honoured around £1.6m in customer deposits and ensured these were either refunded or by orders being fulfilled.

As for creditors, TP, the super senior secured creditor held a floating charge against the company and was owed £4.8m. As part of the sale agreement, a sum totalling £2.1m was paid to TP while a further £1.6m has been agreed to be rolled-over into the newco. Additionally, £1.1m was distributed to TP under is security following administrators being appointed.

Moulton Goodies Limited, senior secured creditor, and founder John Harris, junior secured creditor, are owed combined sums of £7.4m. Administrators said it is currently uncertain if a distribution will be available. As for preferential claims, employees have been transferred to the newco under TUPE, while the HMRC is owed £513,000 and is expected to be repaid in full.

Unsecured creditors, owed £3.8m, are not expected to be repaid, unless by the way of a prescribed part dividend where floating charge holders exceeding £10,000 could receive a distribution from £800,000 made available on an equal claim basis. It is expected that creditors could suffer a shortfall of £11.1m.

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