VAC Group $40m collapse: Year on year losses leads to liquidation

Fresh documents into the collapse of a major Qld company have revealed it had not made profit since the financial year ending 2018 while administrators have claimed the directors ‘ought to have been aware’ it had been trading insolvent for almost a year.

Directors of the VAC Group Benjamin Costello, Neil Costello and Jack Beach.

The collapse of Australian civil works business VAC Group of companies has exploded to more than $40 million with 167 employees owed a combined $4.5 million as the Yatala-based firm enters liquidation.

Reports filed by the external administrator also claim the companies had not made a profit since FY18 and that the directors, Jack Beach, Neil Costello and Benjamin Costello, may have allegedly traded insolvent for almost a year and “ought to have been aware”.

No action has been taken against the directors.

The VAC Group commenced operations in 2005 in Queensland providing a number of services including excavation of materials using non-destructive vacuum hydro-excavation services, waste recovery, transportation, treatment, disposal and recycling services.

Sites included Yatala, Rockhampton (Gracemere) and Gladstone in Queensland, Lonsdale and Wingfield in South Australia as well as Dandenong and Thomastown in Victoria.

The companies went into voluntary administration on December 4, 2022 with Stephen Earel of Cor Cordis appointed the administrator.

All of the staff were let go and operations across all the sites were ceased the next day.

After a month of voluntary administration and a second meeting with creditors, the company was placed into liquidation on January 19, 2023.

In an administration report lodged by Mr Earel on February 7 for the period of December 4, 2022 to January 18, 2023, it was claimed the companies owed a combined $40,047,975.50.

Up to 167 employees are owed a total of $4,552,310.14 in wages, superannuation, leave and redundancy payouts.

A total of four secured creditors are owed $27,080,097.82 and 68 unsecured creditors, who are mostly trade suppliers, are owed $6,273,738.09.

VAC Group Holdings’ companies include Soil Transfer Pty Ltd (dormant), Staking U Asia Pacific Campus Pty Ltd, Rebirthed Earth Pty Ltd (dormant), VAC Group Operations Pty Ltd (main trading and employing entity, all sales, accounts, receivable and accounts payable processed through this entity), VAC Group Employees Pty Ltd, VAC-U-Digga R & D Pty Ltd, Earth Radar Pty Ltd, VAC-U-Digga NZ Limited, Beacons NZ Limited, VAC-U-DIGGA Pty Ltd and Beacos Pty Ltd (asset holding entity).

Earth Radar was set up to operate the company’s radar and location services and received a $1,000,000 government grant to assist with developing radar technology which it did.

It has not traded since mid-2019 and is not in voluntary administration.

YEAR ON YEAR LOSSES

The financial year ending 2018 was the last year the companies made a profit on revenue of $42.3 million.

The companies went into voluntary administration in December 2019 and underwent a restructure in the process and continued to trade.

The restructure included a Deed of Company Arrangement for creditors and refinancing of existing banking facilities and restructure of group operations.

As part of this, a $17 million facility was financed by New York private investment firm Balbec, which expired on December 31, 2022.

According to the report filed to ASIC, the companies have not been able to bounce back from the restructure as expected, following COVID-19 restrictions and shut downs and an unseasonable wet season.

The report states there was a “substantial reduction in revenue during 2020 to 2022” following “site shut downs in each state and restrictions with Covid-19”.

Mr Earel has also written in the report there was “also an unseasonably wet winter in Queensland and New South Wales which hindered operations to work”.

The loss of revenue meant the companies could not make payments on the debt to Balbec.

“Ultimately the trading losses were not sustainable,” the report states.

“Additionally, as the group was unable to create enterprise value, the refinance proposals provided to the secured creditor were not sufficient to pay out the secured debt.”

For the financial year ended June 30, 2020, the companies incurred operational losses of $8,395,888.

“Covid restrictions and site shut down impacted ability to work, work in Victoria dropped to around 25 per cent of pre-Covid levels and the trading location in NSW was the centre of a full local government area closure and work dropped to almost zero,” the report states.

“Revenue appears to have dropped by circa $5 million during this financial year.

“Omicron wave created significant hindrance to the business, whole sites would be shut down if one worker had it and the business would still have to pay wages for that shift, resulting in wage costs that did not bring any revenue to the company.”

Ergon Energy was cited as a large source of revenue for the Queensland sites and it stopped requesting plant works for almost two years, only emergency work, causing a further loss of revenue.

The companies’ losses continued to plummet the following financial year.

For FY21, the company incurred further operation losses of $7,791,790, accumulating losses to $16,187,378.

During 2022, there was “unseasonal wet weather during winter that impacted operations”.

For FY22, companies continued to operate at a loss incurring losses of $6,356,033, taking accumulated operating losses to $22,543,411.

The company directors attempted to negotiate finance with Balbec in October and November 2022 but refinance proposals were declined.

The voluntary administration was filed the following month in December 2022.

“The companies were starting to make a turnaround during October and November 2022 however the largest secured creditor being Balbec was not in a position to provide any additional funding or additional time for the companies to seek alternate finance to pay out the debt,” the report by Mr Earel reads.

At the time of administration Balbec was owed $28,810.04

INSOLVENCY AND ALLEGED BREACHES OF THE ACT

The administrator’s report, which is 343 pages long, also investigates potential beaches of the Act and insolvent trading.

John Beach, Neil Costello (and secretary) were both appointed as directors on March 6, 2008 and Benjamin Costello was appointed as director on April 23, 2009.

Mr Earel states the preliminary view is that the companies were insolvent from at least January 2022 up until the date of the administration.

“The companies appear to have traded while insolvent from at least 1 January 2022 and the Directors ought to have been aware of the companies’ insolvency,” the report states.

Based on the estimated date of insolvency, according to the report, the potential claim for insolvent trading is calculated to be about $3.4 million.

Preference payments are stated to be in the range of $1,743,894 to $3,830,264.

There are no unfair loans and only one uncommercial transaction/ unreasonable director identified.

The payment was $124,948 to Earth Radar, a related entity, and is not explained in the books and records.

“The directors may have breached/contravened the act in terms of adequacy of books and records, insolvent reading, care and diligence,” the report states.

“The companies’ financial records may not have been maintained in accordance with section 286 of the Act as they are not sufficient to explain all transactions up to the date of our appointment, particularly since 1 November 2022. This is likely due to our appointment occurring prior to the completion of a full consolidation and reconciliation of the Companies’ accounts.”

FUTURE DIVIDENDS

Secured creditors are to be confirmed after the sale of company assets.

Priority creditors can expect nil to 22 cents per dollar and unsecured creditors nil.

“It is unlikely that ordinary unsecured creditors of the company will receive any dividend should the companies be placed into liquidation,” the report states.

“Based on our estimates for our remuneration as administrators and liquidators of the companies, and the estimated legal fees … it is unlikely that the amount available to priority creditors would exceed $1 million.

“It is not likely that there will be sufficient realisations in the liquidation to facilitate a dividend to unsecured creditors.”

*DISCLAIMER: Formal action has not been taken against the directors.