10 collapses and the lessons learnt

feature-collapse-200aIt’s tough out there right now.

This year it seems that every week another business goes under, from big companies like trucking firm 1st Fleet to small businesses like the football and athletic shoe importer Azumah.

From tourism industry troubles to construction company collapses and the ongoing downturn in retail, it seems like no sector is immune.

If there’s any good to be gleaned from the string of recent collapses, it is the ability to learn from what’s happened and to make sure that your business is not next in the firing line.

There’s a valuable lesson in each and every one of these collapses and we’ve highlighted those lessons here for you.

1. Metal Storm’s grand vision shot down

In the heady days of the dot com boom, Queensland-based company Metal Storm had an idea that seemed to bridge the gap between the old and new economies.

Gun makers have been around for centuries, but Metal Storm and its founder Mike O’Dwyer – a former supermarket manager turned inventor, who was at that stage best known for air-cooled running shoes – had a new vision. A gun that fired bullets – thousands of the things every second – using an electronic firing mechanism.

Investors loved the idea and when Metal Storm floated on the ASX in 1999 its shares jumped from $3 to $3.50.

But then the problems started.

Early interest from the defence sector seemed to peter out and the debts mounted. O’Dwyer stepped down in 2005 (although he maintained a stake in the business) and management travelled the world looking for more finance.

In 2009, the company landed $2.1 million from Philippines-based company Assure Fast Holding. More recently, Metal Storm announced it had entered into an agreement with Luxembourg-based Luxinvest Capital Advisors SA to eliminate $11.9 million worth of debt. The plan was also designed to provide $2.95 million in working capital.

But Luxinvest didn’t come through, leaving Metal Storm unable to complete the plan by the agreed date of July 18. Just weeks later, Adam Shepard and Adam Farnsworth of insolvency firm Dean-Willcocks Shepard were appointed.

The Lesson: Commercialisation counts above all else. Cool ideas will attract investor interest and potential will keep it (at least for a while) but unless actual sales start to flow, you will only ever be one collapsed financing deal away from disaster.

2. Clive Palmer’s hotel of horrors

Clive Palmer loves to get lawyers involved in his disagreements – even if it means putting a company or two into administration. His fight with Frank Lowy about the state of Australia’s local soccer league saw his club Gold Coast United into administration and in March his battle with international hotel chain Hyatt also ended with a trip to the administrators.

The battle started in February, when Palmer tried to get Hyatt removed as the manager of his resort of Coolum on the Sunshine Coast, claiming the hotel chain had mismanaged the property and siphoned millions from it.

Hyatt went to court to stop its removal and the sacking of the manager and succeeded. Palmer responded by putting the resort into administration and later reached a settlement with Hyatt.

The resort is now operating under Palmer’s control and he recently unveiled plans to build a casino on the site.

The Lesson: Be wary of messing with Clive Palmer, because he has plenty of crafty legal moves in his arsenal. And just because you win the battle – as Hyatt did when it successfully blocked Palmer from removing it – doesn’t mean you will win the war.


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