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Shanton administrator says troubled clothing chain has $4.4 million shortfall in assets to debt

Creditors of women's clothing chain Shanton Fashion are owed almost $7.8 million while the company has only $3.35 million in assets, a wider shortfall than the $693,000 estimate directors gave when the company went into voluntary administration last month.

Administrator Bryan Williams's latest report says the total number of creditors is 206, including the Inland Revenue Department owed $109,125 and employees owed $175,000 in outstanding holiday pay. Debts include $1.58 million in loans from interests associated with the company's director/shareholders, which the report said needed further work to confirm.

Shanton has 155 employees across 37 stores nationwide. Staff have continued to get paid and stores have traded normally while the administrator advertised the business for sale on Jan.30. Nine expressions of interest from potential buyers have been received, with a closing deadline of Feb.24.

Before then, though, creditors are set to meet on Feb.16 to decide the future of the business. Williams recommends in his report that the meeting be adjourned until March 30 to allowed time for the sale process to run its course.

"There are nine parties that have shown genuine interest and the determination of that interest should be fully explored," he said.

Other options for creditors include tipping the company into liquidation, approving a deed of company arrangement to repay debts over time, or bring the administration to an end and reverting back to directors running the company.

Voluntary administration is a short-term measure that freezes the company's financial position while the administrator and creditors determine its future.

The administrator's report said he had also looked at viability on a store-by-store basis in order to consider rationalising the store footprint and undertaken a company-wide stocktake.

The report says one of the key factors leading to the chain getting into trouble was cash-flow pressures created by the payment terms of Chinese suppliers following a move last year to switch from New Zealand suppliers to purchasing direct from China. A prolonged winter last year and a late start to summer had an adverse impact on sales and subsequent discounting in order to boost sales led to lost margin and profitability.

The company made a net loss of $824,000 in the 9 months to Dec. 31 on sales of $12 million.

Directors of the chain's owner, Shanton Fashions, appointed Williams after the company's credit facilities were withdrawn and demands made for repayment of the overdrawn balance.

The administration comes just over two years after Shanton was bought out of receivership at the end of December 2012. Receivers then reached a deal with trade creditors owed $1.6 million.