A year on, Dataflex's $10.7m debt goes unpaid

A year after one of the most high-profile channel collapses in recent memory, the liquidators have shed more light on the fall of Dataflex.

The Canberra-based reseller, which collapsed after 27 years in business, left more than $10 million in debts to trade creditors and employees.

The list of creditors in the report by insolvency practitioner RSM Bird Cameron reads like a sombre who's who of the Australian IT industry.

Other than Dicker Data and Ingram Micro, which were both listed with a zero balance on the ledger, it seems barely any distributors were spared, with $698,000 owed to Synnex, $273,000 to Nextgen Distribution, $228,000 owed to Distribution Central, $174,000 to Avnet, $78,000 to Bluechip Infotech, $47,000 to Alloys and $36,000 to Westcon.

Vendors didn’t escape either, including $367,000 owed to Dell and $115,000 to Hitachi Data Systems. Even other resellers were burned, with CompNow owed $114,000, Best IT Engineering owed $106,000 and mobility outfit Delv owed $26,000.

All in all, the debts add up to $10.7 million. Some trade creditors told CRN that their debts were covered by insurance, others had written it off.

With employees taking first precedence and secured creditor NAB still owed more than $1 million, it's unlikely trade creditors ever see any return.

The boss of one of the disties told CRN that the situation "further emphasised the role the distributor plays in the channel and how much support distributors give to resellers to try and create business".

Of the $720,000 in unpaid wages and super owed to employees, so far some $286,000 has been paid out through the government's Fair Entitlements Guarantee Scheme (FEG), which replaced the previous General Employee Entitlements and Redundancy Scheme (GEERS).

Asset sale

What was left of Dataflex was ultimately acquired by managed services provider VTS IT in April 2014; the latest liquidators report shows that the buyer spent $160,000 to get the plant, equipment and vehicles, plus the business name and customer list of Dataflex's cloud division, Blucloud.

The sale to VTS IT, which was first mooted in April, was dragged out for almost two months because one of the secured creditors, Commonwealth Bank, stalled on providing consent for the deal. The other secured creditor, NAB, "provided consent in a timely manner", according to the liquidators report.

Dataflex's debtor book was worth $3.3 million but $2.7 million of these are disputed. The liquidators have managed to recover $560,000 so far, with another $112,000 being actively pursued.

According to the report, the liquidators have considered legal action over a dispute with Hitachi Data Systems that had been running since 2011, related to a contract with the Department of Human Services.

HDS had been required to nominate an SME partner to perform a minimum of 10 percent of the work, and chose Dataflex.

Dataflex expected to provide 13 percent of the work, worth $1.8 million, but claims it was only ever paid $582,000. The liquidator was considering seeking litigation funding to pursue a return via the courts.

An HDS spokesperson told CRN: "HDS has no matters or liabilities outstanding with Dataflex or its administrators. As such, we would deny all claims arising from any legal action."

The reseller had another dispute with Tech Mahindra, with Dataflex claiming to be owed almost $600,000 in unpaid sales commissions and services after one of its employees was seconded to the Indian outsourcing firm for a period of time.

However, Tech Mahindra is owed roughly $1 million for unpaid goods, and would seek to offset Dataflex's claim against its own. The liquidator has opted to "discontinue recovery action against Tech Mahindra".

To make matters more complicated, Dataflex had been courting Tech Mahindra for many months as a potential buyer.

While the liquidator's investigation suggests Dataflex may have been trading insolvent since 1 August 2013, Dataflex's director said that he had reasonable expectations of being acquired by Tech Mahindra, in which case the buyer would pay the debts in full.

When Tech Mahindra pulled the plug on the potential acquisition, Dataflex swiftly moved toward administration, then liquidation.