NAPIER, 29 January, 2016 -  The bankruptcy of the hedge fund-owned Dick Smith consumer electronics company serves as a warning to trade suppliers on the dangers of a once-secure business going into play and from here in a relatively short time being unable to pay its trade debts.Basically Dick Smith was acquired from Woolworths Australia with Dick Smith’s own money. This meant that immediately after it had taken ownership the new acquirer, the hedge fund, had to extract the money from Dick Smith to pay for buying Dick Smith.This was accomplished by a series of fire sales which raked in the required liquidity. This left though a gaping hole in the inventory which was now bounced around to cover the gaps.The debt technicians went to work on the figures and the sales and revenue figures had investors spellbound when a year later the new Dick Smith went through its IPO. The only question anybody had was why Woolworths had quit its subsidiary Dick Smith at such a bargain basement price.Now we have the next lesson. Woolworths quit its discount high street consumer electronics subsidiary because its own figures, the genuine ones, showed how the discounter was being undercut by the deep-discounters and the ultra-deep discounters.It was now that the former parent’s forecasts began to come true. The visible manifestation of this was the sliding share-price figures as Dick Smith’s high street base began to be so visibly undercut.Once loyal pundits began to take fright and in their case this took the usual form of claims that, yes, in fact, they had known all along about Dick Smith’s parlous position.Public concern has focused inevitably on gift and other vouchers. But the real problem will be inflicted on trade suppliers.What are the warning signs to suppliers? The chief red light is that of a familiar company moving into the hands of any finance organisation. The pundits always lap it up citing the acquisition as proof of the general wizardry if not genius of the acquirers.Also contrary to the accepted wisdom, an IPO or transition to public ownership via a stock exchange is in fact a klaxon alarm signal.It indicates that the original owners do not like the company any more. Or, as was the case of Dick Smith they need the money to fill the black holes they have created in order to buy the company in the first place.The pundits accept the promoter story to the effect that the offering is required to underpin expansion, and especially so into new and more profitable areas.As we have seen with Dick Smith, the public instead is merely supplying money to fill the debt hole.

From the MSCNewsWire reporters' desk