Following the discovery of seemingly inexplicable business transactions which took place just prior to the collapse of Canadian retailer Dylex Ltd, it seems likely that executives will be forced to explain their conduct in court.

Dylex' Canadian bankruptcy trustee, Richter & Partners, will file a proceeding at the US bankruptcy court within the next few days. If approved, the US court will allow the Canadian court to issue subpoenas for discovery, thus enabling some light to be shed on proceedings for creditors.

Dylex, the operator of Fairweather and Biway went from being a relatively healthy retailer to just the opposite within weeks of its purchase, for $68 million, to Hardof Wolf, a shell corporation owned by McCrory Corp.

A report issued by the Dylex receivers shows that Dylex had shareholders equity of $105.4m the day before it was acquired by Hardof Wolf. By the time the company filed for bankruptcy protection, it had acquired a book value deficiency of $2m.

Creditors have alleged that Hardof Wolf channelled money to McCrory Corp that was rightfully owned by them. A number of payments are being investigated by Richter & Partners, for which no reasonable explanation has yet been found.

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