Documents cited by Kotaku Australia state that PwC, the company placed in charge of GAME’s administration, will recommend GAME go into liquidation after the next creditor’s meeting on June 19. Creditors will vote to decide GAME’s fate, but PwC explicitly states in its Administrators report that “absent of any other options, it is our opinion that the Company be placed into liquidation as the Company is insolvent”.
Another alternative is that the company is placed back in the hands of the previous Directors, but according to the report, the administrators “do not believe that this alternative is in the best interests of the creditors”.
It will, however, be up to the creditors themselves to decide come June 19.
According to the report, GAME hasn’t made an annual profit since it was purchased in 2006.
“We understand that the Company has been loss making since at least the time it was purchased by Game Stores and has relied on funding from GameUK (via Game Stores) since that time to continue trading,” claimed the report.
Until recently GAME Australia has been relying on funds diverted from the UK in order to keep its head above water. This made business difficult when GAME UK itself went into administration in March of this year.
“[GAME Australia] has relied on the funds received from Game Stores to fund its losses and therefore to continue to trade since it was purchased in 2006,” said the report. “This is evidenced by the combined loan and equity injections of $122m made by Game Stores to the Company since that time.”
The report provides different perspectives on precisely why GAME Australia’s business struggled, with both the administrators and GAME themselves providing different reasons as to why they failed to make a profit since 2006.
GAME itself attributed its troubles to…
– Lacklustre economic growth and weak general conditions experienced by the retail sector.
– Cyclicality of the gaming industry, with 2011 being the third consecutive year of double digit industry revenue declines.
– The Company’s inability to move from start-up losses into sustainable profitability after Game’s initial acquisition in 2006.
– Inflexible and high cost leases which made break-even performance challenging and future lease exists difficult to execute without significant funding.
PwC themselves, after investigation, believed that dependence on GAME UK for funds, in addition to the following reasons drove GAME into administration.
– Inability to generate sufficient sales volume or margins to cover expenses.
– High overheads including wages, transport and lease costs.
– Number and location of stores did not appear to be in line with the Company’s market
– Change in market conditions in recent times has seen a shift from retail to on-line purchasing of the gaming product at lower costs to the consumer.
It’s an interesting situation, but it looks as though PwC will recommend liquidation unless a reasonable offer for the company is made before the creditor’s meeting on June 19.
At the moment the report states there are upward of 30 parties possibly interested in purchasing GAME, and PwC is continuing to deal with those parties: apparently an update on the possible sale of the company will also be provided at the creditors meeting.
“Unfortunately this is a report for the creditors of GAME to consider and vote upon at the second creditors meeting on 19 June 2012,” said PwC, when we approached them for comment. “Accordingly it is inappropriate for PwC to comment before then.”