Company Three – Indoor Sports Centre



Company Three operated as an Indoor Sports Centre for approximately eight years prior to the appointment of the original Administrators. Some five years earlier a new Director and shareholder had been appointed to the Company in order to assist with the ongoing management of the Company’s affairs from thereon.

However over the passage of time a protracted shareholder dispute developed and was allowed to grow unabated. Eventually funding was withdrawn and this resulted in the appointment of the original Administrators. Due to continuing debates by various parties, the closure of the centre and a perception by some that there may have been an element of bias in the original appointment, our Firm was subsequently selected to replace the original administrators.

We immediately reassessed the viability of continuing to trade the Company’s business as the hard asset value was very low and the real “value” in the business was in its “operations”. The decision was made to immediately recommence operations. Given the design of the centre, its future as a building was guaranteed. The operator however could change.

Having reaffirmed operations and providing the necessary gusto to ensure people, (i.e. staff, clients, local community, etc) that the operations were here to stay we then set about seeking to sell the business as a going concern. Ultimately a buyer was located who purchased the business for in excess of $450,000. Clearly a stunning result for all concerned, particularly given the perilous position prior to our appointment. It was in fact so good that it created a Captial Gains Tax liability that had to be paid as part of the distribution process.

Notwithstanding the great result the purchaser did not want the Company and the relationship between the existing parties was such that liquidation was the only alternate.

A further interesting component of the negotiation phase of this sale was that the landlord required convincing that the sale of business would provide the best outcome from his perspective. This required ongoing and intense discussions between us and the landlord and his representatives in order to enable the sale of business process to complete. This was a particularly complex and harrowing experience as there were outstanding issues in respect of rent, building improvements and rectification works, relationship management and integrity issues in respect of the original operators of the business.

One of the other key issues in this matter was to resolve the significant and disputed the claims by related parties. Throughout the course of the administration and liquidation, I received claims from the Directors and shareholders of the company in relation to funds which they contended were outstanding to themselves for employee entitlements, contributions, effort and credit loan account balances. These claims were further complicated by there being an interest component being contained in the agreement between the parties.

After a substantial amount of time was expended and little progress made it was decided to declare an interim dividend to ordinary unsecured creditors in order to allow for a partial return to external creditors whilst holding the claims of the related parties in abeyance pending a suitable resolution of their situation.

Upon completing our assessment of the matter, we believed that we essentially had two options with which to resolve the claims of the related parties: 1.Reject the claims in part or in full; or 2.Present the results of my investigations to the related parties and attempt to reach a compromise which was suitable to all parties concerned.

As Liquidator, we could have sought to reject the claims of the related parties in full or in part. Had we engaged in such action, the related parties would be entitled to take the matter before the Court to have our determination reviewed which would have resulted in greatly increased costs of the liquidation and increased legal expenses associated with the proceedings that would have been required. Whilst this option would have clearly resulted in our ability to gain a higher level of fees and charges, it would most likely not have provided a better return to creditors generally.

The alternative course of action was to formally present the findings of my investigations to the related parties and seek a compromised resolution of the matter with them in a cooperative manner. This course of action would reduce the amount of the costs of the liquidation and would have reduced the charges and legal costs in the liquidation. During the course of the negotiations, we drew the related parties’ attention to the deficiencies in each of their respective claims. We further advised them that we would more than likely not admit their respective claims for the purposes of their participation of any dividend. Following the provision of such information, instead of embarking down the previous option of simply rejecting their respective claims as detailed above, we sought to engage the related parties in direct negotiations in order to achieve a compromise which was suitable to all parties.

The agreement reached with the respective parties included some of them withdrawing their claims entirely, and others submitting revised proofs of debt for lesser amounts.

As a result of these negotiations, the shareholders claims effectively became a Distribution of Capital as Unsecured Creditors and ultimately received a dividend of 100 cents in the dollar. This outcome was reflected in feedback to us as an extraordinary result at that time.

Each of the shareholders was then able to receive a distribution of the surplus assets in accordance with the Memorandum and Articles of Association laid down in the Company documents.

At the end of the day if you remove the fight it is possible for everyone to win.