Preliminary investigations by the administrators of dessert king Adriano Zumbo’s cafes have suggested one of the entities in administration could have been trading while insolvent since mid-2017.
Three of Zumbo’s businesses, 611 Pty Ltd, Mel611 Pty Ltd and I’m So Fancy Pty Ltd, entered voluntary administration at the start of the month, though they continue to trade. Reasons for the voluntary administration were not defined at the time, however, it was revealed the companies had an outstanding debt of about $10 million.
According to a creditor report sent out last week seen by SmartCompany, administrators Anthony Elkerton and Justin Holzman from DW Advisory alerted creditors that one entity, I’m So Fancy Pty Ltd, “may have been insolvent from at least early- to mid-2017”.
Furthermore, the administrators stated in the report “it is likely that the company engaged in insolvent trading prior to our appointment”.
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Exact details are still subject to further investigation, with the administrators admitting they had been limited by time constraints and had insufficient time to determine a date of insolvency or “quantify any claim for insolvent trading”.
I’m So Fancy was reportedly a high-end tea room operated by Zumbo that ceased trading last year. According to the administrators report, the business chalked up nearly $1.2 million in trading losses since July 2015, and had also not been paying rent since earlier this year.
Responses from directors, of which Zumbo is the only one, on explanations for financial difficulties leading up to the administration of the company were “low turnover” and “construction surrounding premises for the past four years”. The administrators said from their “limited” review, the failure of the company could be attributed to “poor strategic management” and “poor financial control”.
Furthermore, the administrators claim the business had insufficient working capital to meet its short-term obligations since the 2016 financial year, has not appeared to have reported a net-positive asset position and does not appear to have complied with all tax lodgement obligations.
However, the administrators note the business may still be solvent if it had received financial support from external related parties up until early 2018.
Companies and company directors are banned from trading or incurring further debt while entities are insolvent by law under the Corporations Act. Penalties can reach up to $200,000, and directors can be left liable to pay compensation directly to creditors if found guilty.
If dishonesty factors into insolvent trading, directors can face higher penalties of $220,000, and can potentially also face jail time.
Speaking to SmartCompany at the time of administration, Holzman said the administrators were hopeful for a restructuring to be proposed by late-August.
“We are hopeful of there being a restructuring proposal by way of a deed of company arrangement that we intend to provide to creditors in late-August,” he said at the time.
However, the report shows no deed of company arrangement has been proposed at this time.
Zumbo rose to prominence thanks to a continued set of appearances on Channel Ten’s Masterchef, including the famous season one croquembouche challenge, an iconic episode of Australian television.
SmartCompany contacted Zumbo’s business but did not receive a response prior to publication.
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