IS THIS THE CHOCOLATE FACTORY’S GOLDEN TICKET? WILL VOLUNTARY ADMINISTRATION SAVE MAX BRENNER?

On 3 October 2018, luxury chocolate restaurant Max Brenner announced that it had placed itself in administration and had appointed restructuring experts McGrathNicols as administrators. The company had announced in early 2018 that they were experiencing large profits and they were going to open seven new restaurants across Australia in 2018. So, what went wrong?

Overexpansion

While escalating costs and a competitive retail trade have been cited as reasons for the collapse, rapid growth and a lack of capital stand out as the probable culprits. Max Brenner’s rapid expansion, opening restaurants across all Australian states and territories with the exception of Tasmania, likely stretched their capital expenditure without proper consideration of projected profits in an environment of subdued consumer spending. Despite earlier claims that the business was prospering, it is hard to accept that a business as large as Max Brenner would not have had red flags warning them of things to come.

Red flags

In fact, it seems there were obvious signs of trouble well before administrators were appointed.

Max Brenner’s decision in 2016 to undertake expensive renovations of the company’s head office in Doody Street in Sydney’s Alexandria had such a severe impact on the company’s cash flow that it apparently resulted in the company being unable to pay it’s staff’s superannuation.

There were further claims in 2017 that the company’s inability to pay ice cream supplies led to deliveries ceasing.

On 29 September 2018, an application to wind up the retail chain was issued by Sunstate Ceilings, an Australian construction company. An application for winding up can be brought by any party that is owed more the $2,000 and correctly issues a statutory demand. If the demand for payment is not met in time, then the party can bring an application for the winding up of the company. It was shortly following this application that Max Brenner chose to place the company into voluntary administration.

Voluntary administration

Voluntary administration protects the directors of a company from any liability that may arise after the appointment, if the company was insolvent from the date of appointment or if there was a very real chance it was insolvent. A company is deemed to be insolvent if, having received a statutory demand, it fails to pay the creditor or have the demand set aside by a court.  Voluntary administration is a way for the company to be assessed so that capital can be restructured and assets sold to enable the company to turnaround and continue trading. If the administrator determines there are no future prospects for the company, it will place it into liquidation.

On 8 October 2018, McGrathNichols announced that 20 of the 37 stores would be sold and they were seeking a party to ‘rescue’ the company by injecting capital in the business. The restructure and injection could well be the steps that save this once flourishing chocolate haven.

The DSS approach

If your company is facing financial difficulties, DSS Law specialises in providing comprehensive advice that is tailored to your situation with a focus on ensuring that you are meeting all your obligations at law. DSS Law can examine your company structure to determine if it is at risk should your company face financial difficulties and advise how to restructure your company for the greatest protection and return.

David Chen & Alexandria Pearman 20/12/2018

Disclaimer

DSS Law insight articles are intended to provide commentary and general information. They should not be relied upon as formal legal advice. If you would like specific advice relating to this topic, please contact DSS Law on 1300 DSS LAW or epost@dsslaw.com.au.