Spaghetti House Trattoria owner Claire Parviz used an $868,000 loan to pay herself and now creditors get little
Financial reports on Spaghetti House reveal how owner Claire Parviz used a company loan to pay herself $868,000 and under the deal to stay trading creditors will be lucky to get back 3c for every dollar owed.
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BORROWED WAGES
Claire Parviz is among the lucky few to get a second chance.
The Brisbane hospitality identity has a new lease on life to operate her Spaghetti House Trattoria even though it got smashed by the pandemic shutdown.
After she appointed a voluntary administrator in July to take control of her South Bank eatery, the popular venue remained open and creditors last month approved a “deed of company arrangement’’ (DOCA) so she can keep trading.
Yet not everyone is happy with the terms of the deal, which has allowed her to retain about 40 staff.
Reports compiled by administrator Steve Dixon reveal that Parviz borrowed $868,565 from her solely-controlled trading entity, House Spaghetti Pty Ltd, to pay herself a salary over the years since it launched in 2014.
But the loan won’t be paid back to the stricken company because Parviz has “no assets,’’ Dixon found. That’s devastating news for those out of pocket.
A FEW CRUMBS
The business crashed with $756,715 owed to unsecured creditors, a figure substantially higher than initial estimates of a near $580,000 deficiency. It had just $1000 in the bank.
The ATO is the biggest single party with its hand out, seeking $355,763. Suppliers and tradies are chasing $219,331.
Unfortunately, even in the best case scenario, these parties will recover just a tiny fraction of what they should get.
Those owed money will only claw back a meagre 1 to 3 cents on the dollar as part of the DOCA but they accepted the deal because liquidation would have returned nothing.
Earlier estimates suggested that unsecured creditors could retrieve 5 to 8 cents on the dollar and it’s not clear why that changed.
Under the deal, Parviz has agreed to tip in $190,000 to be paid back over 30 months, with the money coming from future cash flow generated by the restaurant. That’s up from a $170,000 package she originally put on the table over a 24-month period.
Several of her intact related entities will not take money under the DOCA scheme.
With lockdown restrictions eased, turnover at the venue has been averaging about $52,000 a week. It’s forecast to reach $2.41m by July next year and $4.34m by mid-2022.
WARNING SIGNS
Even before Spaghetti House went to the wall, it was clear that Parviz faced serious financial problems across her business empire.
A month earlier, her parallel business, CJ’s Pasta and Café Pty Ltd, crashed and burned even after getting a $119,252 loan from House Spaghetti Pty Ltd.
Dixon took on the liquidation duties and found the West End-based Italian eatery failed with liabilities of $441,714.
That included $221,052 owed to unsecured creditors, who retrieved nothing from the wreckage.
Notably, Dixon determined that trouble predated the pressures brought to bear by COVID-19.
In a report to creditors, he alleged that House Spaghetti Pty Ltd “was insolvent from at least July 2019’’. No action has been taken against Parviz.
Dixon found it already had a “working capital deficiency’’ in the 2018 financial year and by November that year it was unable to meet tax obligations. Among the outgoings was a $260,000 “management fee’’ paid to the CJ’s business.
The business then suffered a net loss in the 2019 financial year and “was unable to pay its short-term trade creditors’’ from that July.
Despite these challenges, Parviz engendered plenty of good will at the height of the pandemic.
She donated a bunch of lasagnes in April to guests marooned at the Rydges South Bank. They were travellers stuck in self-isolation after returning to Australia.
She also delivered food to loyal customers and fed her laid-off workers, many of whom were from overseas and battling to pay rent.
Neither Parviz nor Dixon returned calls seeking comment on Tuesday.
But she previously vowed that the restructure would mean “business as usual’’ for diners.