In the next 24 hours Brad Skelton will be making the decision that every business founder dreads: whether or not to pull the plug on the business he started and built up from scratch. That decision will depend on whether a white-knight investor comes forward to get the company back on its feet.
But what Skelton wants to know is, why does he find himself spread-eagled on the canvas in the first place? The short answer is that his bank of “five or six years”, HSBC, withdrew its support. The longer answer that might explain why Brisbane-based freight forwarding company Skelton Sherborne was placed in receivership is not as clear.
Skelton started Skelton Sherborne in 1995. The business has twice featured on the BRW Fast 100 of Australia’s fastest growing businesses. The company, which specialises in the shipping of heavy machinery and equipment for the mining, construction and energy sectors, had revenue of $68.5 million for 2011-12.
Although its performance was below its pre-global financial crisis heights – the company reported revenue of $93 million in 2007-08 – a radical restructure of the business, including the closure of overseas offices and the shedding of staff, saw it successfully bounce back. “The realist in me says the economic woes globally aren’t over yet,” Skelton told BRW in March 2012, “but I’m optimistic about my own business.”
His optimism proved ill-founded. Skelton Sherborne’s post-GFC bounce turned into a splat when Skelton found himself at the losing end of a soured relationship with his bank.
Things started to go awry in September when HSBC called in its $1 million overdraft to Skelton Sherborne and demanded payment of $100,000 every Friday on pain of receivership. Skelton says that with the support of “long-standing clients, suppliers and friends” the company had reduced its debt to $150,000. “It placed our cash flow under a lot of strain. The bank was getting any spare cash to bring the overdraft down. The impact on the business was severe,” he says.
On November 20, two months after commencing the recovery process, HSBC froze the company’s bank accounts and withdrew all additional credit facilities. Skelton says he was presented with a demand for $1.5 million. Three days later the bank appointed Deloitte as receiver and manager.
“The company was not outside of any bank covenants or limits [nor did it] have a single default or judgment against it that would give justification to our bank’s action,” Skelton wrote in his blog on November 29, taking the unusual step of providing a blow-by-blow account of his crumbling relationship with HSBC. The bank’s action, he wrote, had “paralysed” the business.
Following its appointment as receiver on November 23, Deloitte spent one week at the helm of Skelton Sherborne charged with recovering the funds. During this time it placed advertisements in the financial press seeking “urgent expressions of interest for purchase of the business and assets of the company as a going concern”. There were no takers.
After just one week, Deloitte informed Skelton that it had been “partially retired” as receiver by HSBC and control of the business was returned to Skelton.
He was not happy with the condition of the business. As well as HSBC bank accounts remaining frozen – the company is operating from a secondary account with Westpac – Deloitte maintains control of the debtor book and will be collecting all amounts owed to the company as of November 30, depriving Skelton Sherborne of cash flow to operate the business. Deloitte will also collect stamp duty refunds of $86,000 due to Skelton Sherborne.
Skelton blogged that the business returned to him “had its heart ripped out” by the freezing of its bank accounts and by the actions of Deloitte which “brutally carried out their task in getting the bank’s money with little or no regard for our clients and our ongoing relationship with them, the future security of employment of my team and payment of other creditors who are owed money too”.
Skelton is critical that in the week that Deloitte ran the company no new business was permitted to commence, forcing several Skelton Sherborne clients to other freight companies. A Deloitte spokesman defends this decision: “Our first priority was to commence a review of the business’s financial position and it would have been imprudent to take on the potential liability of new business during this time.”
Skelton says the company has been left in limbo and has “virtually no cash on hand” or access to credit to operate the business. In the meantime, cargo is “stuck on wharves around Australia” incurring charges that the company cannot meet. Skelton believes his company is now insolvent and is seeking legal advice.
“The business was handed back to me by Deloitte in an insolvent condition. As a responsible director I’m not going to be guilty of trading while insolvent,” Skelton tells BRW.
“Unless an angel investor comes through very fast I’m going to be compelled to go into voluntary administration, or worse, liquidation. If I elect to go into voluntary administration, with an administrator at the helm, that will grant the business more time to bring somebody else in. If the business goes into liquidation, there’s no turning back. I’ll be making the call in the next 24 hours.”
Skelton says closure of the business will mean the loss of 25 jobs as well as contractor positions.
“This is a massive personal setback for me, but in time I’ll recover and rebuild. What I am really sorry about is that a lot of innocent people have been hurt by this,” he says.
HSBC declined to tell its side of the story.