Historic Brisbane pub caught up in $15m collapse of backpacker firm

The owners of the People’s Palace hotel in Brisbane are chasing nearly $9m after the collapse of the country’s biggest hostel operators.

The owners of the historic People’s Palace hotel in Brisbane have been caught up in the collapse of the country’s biggest hostel operators.

Japanese property firm Yamaji Australia Development is claiming $8.7m against Tourism Adventure Group which entered administration last month. More than 150 creditors who are owed at least $15m will now be asked to consider a last-ditch proposal to save the company.

Tourism Adventure Group operated a hostel from the building that opened in 1911 as the Salvation Army’s People’s Palace. The temperance hotel on the corner of Ann and Edward Streets offered “affordable accommodation for working class travelling people.” 

In 1979, it became the Palace Backpackers’ Hostel with the Lonely Planet Guide describing it as “the ideal place to pick up new friends, lovers or travelling companions.” Yamaji purchased the property in 1996 for $3m.

Tourism Adventure Group administrators are assessing a recapitalisation and restructuring proposal put forward by the company’s directors, and will issue a recommendation to creditors when it reports to them on Friday. It follows the first meeting of creditors held earlier this month. Minutes of the meeting, lodged with ASIC on Monday, confirm that 12 venues continue to trade, employing around 140 staff.

However two hostels in Melbourne - Nomads St Kilda and United Backpackers on Degraves St in the CBD - have temporarily closed after administrators disclaimed their leases.

“All landlords have waived rent in full and various other agreements regarding outgoings and trading indemnities are in place, depending on the venue,” the minutes read.

The landlord at Nomads Brisbane claims it is owed $8.7m following the collapse of Tourism Adventure Group. Picture: Richard Walker

“Where agreements could not be reached, the administrators have disclaimed venues in Melbourne.”

The minutes also detail for the first time the amounts owed to individual creditors.

Secured creditor St. George Bank is owed around $7m, including contingent liabilities such as undrawn bank guarantees, while company records suggest close to 150 unsecured creditors are owed around $4.6m, with the ATO and Carlton & United Breweries left most out of pocket.

A further $3.4m in deferred rent and abatements is owed to landlords, but that doesn’t include an $8.7m claim from Yamaji Australia Development - the landlord at Nomads Brisbane on Edward St in the CBD.

Base Backpackers at Magnetic Island.

At the meeting, administrator Quentin Olde from global restructuring specialist Ankura, told creditors the estimated debt to landlords was likely to change as he continued to assess claims from property owners.

“The total owing is difficult to estimate due to potential claims on guarantees and further costs that might be claimed, as well as obligations to mitigate from landlords,” the minutes say.

On Wednesday, the administrators declined to respond to questions about the recapitalisation proposal, other than to confirm that a report would be issued to creditors on Friday, outlining the terms of the proposal.

It will include a recommendation on whether creditors should vote in favour of the plan when they next meet on July 30, or whether liquidators should be appointed to wind up the company.

Tourism Adventure Group, which operated the Nomads and Base hostel networks, called in administrators on June 24 to salvage the Australian arm of the business amid ongoing international border closures and another spike in Covid-19 cases.

At the time, TAG managing director Dan Bunning said the sustained impact of Covid-19, including the collapse of the backpacker trade and the winding back of JobKeeper in March, left the company with no alternative but to attempt to “right size the business and restructure the property assets it operates”.

Backpackers at Noosa beach prior to the Covid-19 pandemic. Picture: Megan Slade.

“We are working with key stakeholders including landlords, employees and trading partners to accept the current circumstances and face the reality of having to reset the business in the midst of this pandemic, to ensure it is well positioned and on a strong footing for the future,” he said at the time.

Mr Bunning said TAG was highly profitable prior to the pandemic, operating 25 venues, employing more than 600 full-time equivalent staff and turning over $150m during its pre-Covid peak in 2019.

Administrators continue to operate hostels, nightclubs and bars across Australia, including in Sydney, Byron Bay, Noosa and Airlie Beach.

According to TAG’s website, Broken Hill hitchhiker Richard McLeod originally founded Nomads as an affiliate marketing program in 1994.

​Mr Bunning bought into the business in 2003 and was later joined by business partners and fellow directors Michael Ebert and Tom Cooney.

Originally published as Historic Brisbane pub caught up in $15m collapse of backpacker firm