Staples Holdings became insolvent because it was never profitable enough to deal with its debts, not because of any improper activity by its management, a probe into the company has found.

And the some 290 shareholders in the company will not see any return on their $5 million investment in the firm in 1995 while its creditors will have to wait about four weeks to find out what return they will receive.

The news comes after a meeting between Staples Holdings' court appointed provisional liquidators and its creditors and contributories on Monday.

Deloitte & Touche partners Paul Hubbard and Mark Smith were appointed by the Supreme Court to act as joint provisional liquidators of the company in September of last year after that court issued an order to wind it up.

And upon the wrap up of their investigation into the firm, Mr. Smith said they had determined that Staples Holdings operated profitably, but not profitably enough.

He said: "Although the company was profitable during the three or four years it operated, it was never sufficiently profitable.'' From its inception the company was hampered by cash flow problems caused by a short fall of profits necessary to finance debt repayment, repayment of the 7.5 percent cumulative preferred shares and payment of dividends to the preferred shareholders.

This cash flow situation was examined in the fall of 1998 and management realised it could not maintain its capital structure if it was to be viable.

The Bank of Bermuda was notified and ways to address the issue were discussed but a restructuring plan proposed by the company was rejected by the Bank early in 1999.

Said Mr. Smith: "In essence, the company got increasingly in debt as time passed. In those circumstances the bank will say stop and the company has a problem as it cannot borrow additional cash to keep going.

"Why wasn't it profitable? "Largely because the overhead costs were greater than what the previous operations -- Staples and Chips -- suggested they would be in their prospectus.

"The merger was more costly than expected and the operation was not run as efficiently as Chips ran theirs.'' But there was no sign of impropriety, he added.

"We have not seen any sign of improper actions by management.'' Meanwhile the shareholders in the firm, who range from people who put $1,000 into the company to those who invested $348,000, have been left licking their wounds and the creditors' futures in relation to the matter are still to be decided.

Mr. Smith said: "The shareholders have been told that there is no prospect of any return.

"The creditors will get a return, but it won't be clear what that is until we get the proofs of debt back from them. That process will take three or four weeks.'' The different parties heard the news on Monday and promptly appointed Mr.

Smith and Mr. Hubbard to act as liquidators for Staples Holdings.

They will now present their report and the result of the meeting to the Supreme Court who will likely back their appointment as liquidators for the firm.

"Next we will be calling for the proofs of debt or updates of the proofs of debt from the creditors so we can assess their claims formally,'' said Mr.

Smith.

"That process will begin in a couple of weeks.'' Sale of Atlantic Medical; Page 23