Daisytek files for chapter 11

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US subsidiaries of massive computer supplies distributor Daisytek International Corporation have filed for Chapter 11 bankruptcy protection.

Texas-based Daisytek Inc and other US subsidiaries including Arlington Industries, Digital Storage and The Tape Company filed the petition under the US Bankruptcy code in Dallas, Texas.

A statement issued Thursday said that neither Daisytek International Corporation or any of its foreign subsidiaries including Australia, Canada, Mexico, Argentina or Europe were included in the filing.

In the meantime, Daisytek CEO Dale Booth and executive VP John Kearney, will lead a restructure of the company.

“After exhausting all non-judicial financing options available to Daisytek and implementing aggressive cost-cutting saving measures during the last few weeks, reorganisation under Chapter 11 is the practical and expedient avenue for relief from the liquidity challenges that are inhibiting the ability of our US subsidiaries to conduct normal business in the United States,” Booth said in a statement.

“It became apparent in discussions with interested investors and purchasers of certain assets that they would be more comfortable having discussions while the US subsidiaries are under the protection of the US Bankruptcy code,” he said.

Daisytek's foreign subsidiaries including Australia have not been affected by the filing as they utilise separate foreign credit facilities, the company said.

It claimed there is a “wall of separation” that exists around foreign subsidiaries such as Australia and foreign credit facilities have a perfect “lien on inventory and accounts receivable.”

David Cullen, MD at Daisytek Australia, said the local operation has its own vendors, agency agreements and credit facilities, so it's “business as usual.”

“We utilise our own Australian financial facilities and have no debts payable to Daisytek International or any other Daisytek subsidiaries,” he said.

Cullen – who was formerly MD at Australia's largest IT distributor Tech Pacific – said the Dallas-based business grew aggressively and created four distribution centers across the United States, spending a lot of cash on capital and people in the process. Flat market conditions meant that revenue didn't flow through immediately. “The banks made a call that they wouldn't [have made] three years ago,” he said.

He added that the local operation is judged and financed on “our own merits.” He added that no cash can be requested by the other subsidiaries from the Australian operation.

The company believed that the underlying assets and operations of the foreign subsidiaries are not subject to the jurisdiction of the US Bankruptcy courts and the underlying assets are not subject to liens of the US lending syndicate. Cullen claimed that the Dallas-based operation had cut around 400 staff from its books over the “last couple of months.”

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