Pegasus Electronics managing director Colin Brown says failed retailer Best Buy could have been insolvent as far back as March.
Brown and Best Buy managing director Mark Mahony are at loggerheads over Mahony’s claim that one of the reasons Best Buy went under was that Pegasus failed to supply for an AMD K6 promotion.
“For them to say it was the case of [the AMD] promotion that caused their demise is absolutely ridiculous,” Brown says.
Best Buy went into receivership in June, saying it had total debts of around $700,000, including $220,000 owed to around 220 customers who had paid deposits on PCs. The company has since been put into liquidation.
The receiver, David Davidson of Coopers & Lybrand, has since identified debts of more than $900,000, including customer deposits of $377,000. Pegasus is owed $424,000 and trade creditors $102,000.
Brown says Best Buy failed to meet payment obligations to Pegasus in March. He claims that at the time more than $500,000 was owed to his company.
“Discussions were held with Best Buy and payment arrangements put in place. It has become apparent that Best Buy was in a serious position at the end of March. If full information was supplied by Best Buy’s accountant, as requested, it might well be clear that it was insolvent before the end of March.
“This position was well before their AMD K6 promotion.” Brown confirms that there was a delivery problem with the K6 chips but says this was for a limited period only. “AMD did a pretty shocking thing; it was a real Clayton’s release of cpu’s and there was a period of two to three weeks where you couldn’t get them.
“[But] we do not accept that any K6 shortage contributed to the demise of Best Buy. Notwithstanding, we can put on record that Best Buy accepted to promote these CPU’s even though they were not yet available in New Zealand, knowing that the risk was theirs.”
He says draft figures provided to Pegasus showed Best Buy was in profit at March 31. “However, after an inspection of the books, a series of questions was put to Best Buy and its accountant. In particular, we asked why Mahony had removed from the business funds introduced into the company to pay for assets of Cost Club (the earlier failed retailer run by Mahony).
“We also queried why there were no consumer deposits shown as a liability, and we also queried payments made on Best Buy’s behalf to creditors of Cost Club. Despite repeated requests, none of these questions has been answered satisfactorily.”
Brown alleges that credit facilities provided by Pegasus were used to expand the business, repay Cost Club debt and allow Mahony to withdraw invested funds from the company.
Mahony says he doesn’t know why Brown is suggesting Best Buy might have been insolvent in March. “We weren’t insolvent. It’s a matter of fact, a matter of record.”
On Brown’s claim that Best Buy hadn’t responded to the questions put to it and its accountant, he says Brown did receive an answer. “It was all faxed to him. I didn’t take the money out. I’ve explained that to him numerous times. I don’t think he could fully understand that all that was happening was servicing the interest on a loan.”
That was a loan to the company, he says. “All that was serviced was the interest.”
Mahony is adamant that Pegasus said it could supply the AMD chips. “Colin Brown said ‘I can get these chips, they can be there in seven days’. We said okay, we’ll just be sure and go out and promote on 14 days because sometimes with customs checks and things you can have delays. He said there was no problem with seven days.
“Why would we as a retailer go out and promote something we weren’t in control of?
“We relied totally on him as the manufacturer. As you can see from that document (conditions Pegasus imposed in March so supply could continue) we actually couldn’t buy from anybody else without his approval. We had to get approval in writing. So, as a retailer we weren’t in control of supply. He was.”
The interim liquidator for Best Buy, John Vague, says that because of the public interest in the failed company he will hold a creditors’ meeting on July 31. The receiver’s report will be received at the meeting.
According to Vague, Davidson says in his report that if book values could be achieved, $130,000 would be available for creditors.