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Industry outrage over phoenixing and abuse of insolvency provisions – Andy McCourt

Last week we posed a question in our weekly survey: "In light of recent sign industry insolvencies costing it & the ATO millions, what is your opinion on how the process works, what are the effects on well-run businesses and in general, what is your view how these insolvencies have played out?"  The number of replies amazed us.

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Some businesses do their best to service and pay debts - others use the system to wipe off debts

There has never been such a strong response to a survey question, with several sign and print companies clearly concerned that some companies who either phoenix or use ‘shill’ subsidiaries to accrue debt and then wind them up, owing large sums; effectively compete on a very unlevel playing field when they re-emerge. A couple have even said they would boycott any supplier who continues to supply a phoenixed company, having incurred a large debt with the ‘oldco.’ This is what in fact happened in 2014 with the unholy mess that was Geon, formerly Pacific Print Group. Two major printers stood firm that they would not buy paper from any merchant who continued to supply the phoenixed Geon – who were already highly predatory with pricing jobs. It worked and Geon bit the dust forever.

This is not to say there are valid cases of insolvency – there are and administrators often have a tough task keeping a company going while finding a buyer, or liquidating all the assets to gain a return of some kind for creditors. But, as some of our respondents say, there are cases of purposeful avoidance of debts, tax, staff entitlements and SGC levies.

Here's what our readers, some anonymous, some putting their name to their reply, had to say in response to the question. The message appears to be – be very careful and diligent in credit control.

  • Unfortunately, insolvency is part of the landscape of business. No-one in their right mind would go into business with a plan to become insolvent so one has to ask why it happens. Suggest the main causes are poor cashflow control, operating with insufficient Gross profit, domino effect of a (too) large a client not paying. The real question is where is the incentive (protection) for anyone in trouble to put their hand up early enough to perhaps avoid compounding the problem. Suggest the stats would be somewhat alarming regards the number of operators continuing to trade in periods of technical insolvency - both knowingly and unknowing.(Michael O'Connell, AS Fisher Co, NSW, Qld)
  • Recent events in Perth have shown that creditors get a raw deal because the system is broken. Equipment worth many thousands of dollars is sold off at auction ( online and requires too much time because of the timetable), for far less than it's worth. The auctioneer does well. It's a shame that there isn't a way where when the going gets tough there isn't a medium for working with other companies to transition out of the industry and we'd have a more balanced outcome ( yes I know I'm looking through rose coloured glasses). (Anon, WA)
  • The whole insolvency system is open to abuse. If an individual goes bankrupt, he or she carries that burden for life. Companies can get away with it all. (Anon)
  • I feel genuinely sorry for business that get into trouble through no fault of their own - health, bad debts, staff leaving and setting up in opposition or even poor financial management but the ones who deliberately phoenix or bankrupt a company then carry on under another name - they're a scourge. (Anon NSW)
  • We are a large sign company servicing Australia and South-East Asia and we consume millions of dollars of input product a year. All suppliers are on notice. If we find out that they are supplying Skope Group or Scream Visual we will be taking our business elsewhere, no second chances. We have seen the evidence - what Skope Group have done with Clear Skies is disgraceful. (Anon, Vic)
  • How are legitimate sign business like us supposed to compete against the likes of Clear Skies/Skope Group/Scream Visual who have misused the insolvency system and effectively bought all their gear at 70% off by wiping off debts! (Anon, Vic)
  • Anyone can get into business difficulties, it's just a matter on how they handle it, ethically or deviously. When you look at recent big ones - Dark Horse, Picton, Scope, Chameleon, Whirlwind, Reactiv there are definitely elements of deviousness and unethical behaviour, aided and abetted by the liquidators or administrators. We all lose out in the end and our industry's reputation gets tarnished. (Anon, SA)
  • This is not new. There was a time when there were nine sign shops going bust in NSW each year. The ATO should be the last concern when a sign business goes bust. The concern should be: 1. Staff wages and benefits. 2. Suppliers who have been ripped off. 3. Customers who paid deposits and where work had not been completed. Firstly the Sign Association should put actions into place if the company is a member. Secondly suppliers should share information amongst themselves (confidentially - not to be shared with their reps, who in most cases are big gossips). If this info was shared it may save some suppliers from "over supplying" on credit and cut their losses. The more suppliers lose because of "insolvencies" the more the rest of the sign companies are going to pay to make up the loss. (Anon, NSW)
  • Look at the recent 'Clear Skies' insolvency & Skope Group Facebook page where it repeatedly boasts about it's manufacturing facilities that it now claims it had no part in even though they work out of the same premises. Something very dodgy went on...we'll probably never know as they now can trade on under the DOCA. (Anon, NSW)
  • How can a company advertise for several staff when it is in administration, owes over $2 mill inc super and staff entitlements and creditors have not yet approved a DOCA? That's what Skope did with Clear Skies P/L, they must have known something! (Anon, Vic)
  • The Signs Association should keep a closer eye on those who look as if they are going to close. In the early days of Sign-A-Rama as soon as a franchisee indicated that they wanted to sell I would, confidentially, call most of their main suppliers and ask what that particular store owed then gave them the heads-up to start collecting and placing all future orders on COD until their debt was cleared. On a sale, once contracts were signed with a new owner I would send out an introductory letter introducing the new franchise owner and alerting all the main SAR suppliers that a change was about to happen so that they could "check and collect" from the current owner. If suppliers and the Sign Association work together they can reduce the number of sign companies who leave huge debts behind them. (Brian Pretorious, BDP Consulting, NSW)
  • I'd be wary of hiring any management level staff who'd spent time with any of the recent phoenixed and driven-into-the ground businesses that have cost suppliers, staff and the tax office millions! (Anon, VIC)

Note: These are comments from industry participants sent in response to our weekly survey. They do not necessarily reflect the views of this publication.