Hey Presto – 70% of Clear Skies $2.3m debt disappears with DOCA
The sign industry is spewing as Clear Skies – t/a signmaking outfit Skope Group Manufacturing Services – has been successfully steered into a DOCA, which has seen 70 per cent of its $2.3m debt disappear from its books, a debt which will now be pushed onto the taxpayer and the rest of the signage industry.
And as the DOCA (deed of company arrangement) got through the Clear Skies creditors meeting, Clear Skies has not been wound up, which means there will be no scrutiny of Skope Group Services director Ann Orren's role in the Clear Skies business. Orren was described by the administrator as “may be a shadow and/or de facto director of the Company" (Clear Skies).
Neither will there be any probe into the affairs of Clear Skies and its relationship with Skope, nor into the $339,000 allegedly made by Clear Skies in preference payments prior to administration. If Clear Skies had been wound up the liquidator would have been obliged to shine a spotlight into the way the business operated, which he has already described as “unusual.”
And in more good news for Orren, under the terms of the DOCA Clear Skies now gets three years to pay $500,000 to creditors and two years to pay $288,000 to the ATO. The $2.3m debt is now 70 per cent lighter, with the company able to produce the same products, operate from the same premises, with the same equipment, with the same staff, providing the same services, but being $1.5m better off.
The rest of the NSW sign industry is apoplectic over Skope; rival signage companies are furious at the procedure, which began with Skope Group Services Manufacturing providing what the administrator says may be “uncommercial” product to what is essentially a sales operation Skope Group, while racking up huge debts by not paying its tax bill nor suppliers, then having 70 per cent of that debt wiped out thanks to the DOCA.
Competitors angrily point out that they have been paying 100c in the dollar to the ATO and to suppliers, while Skope effectively only has to pay 30 per cent, and now gets several years to pay even that.
And unlike the commercial print industry, suppliers have little clout – consumables and materials are readily available from numerous sources. Sign printers spoken to by Print21 say they are "gobsmacked" that the ATO let the DOCA go through.
The Clear Skies creditors meeting this week saw the DOCA get over the line, with creditors voting for 30c in the dollar rather than 0c they would receive if the company was liquidated. A third of the votes were for Skope Group entities who were owed a third of the debt. The 22 employees were told they would get 14c in the dollar if the company was liquidated. The ATO was present by conference call and went along with the DOCA.
Clear Skies has racked up enormous debts in the last three years: it owed $813,000 to the ATO and $724,000 to trade creditors, with other Skope Group entities owed $738,000. It lost $116,000 in 2017, $853,000 last year, and $842,000 this year. Skope itself owes $185,000 to Clear Skies and is the biggest debtor.
Suppliers owed money included HVG, Mulford Plastics, and the MM Group of Amari Visual and Graphic Art Mart. In the commercial print world, companies going through DOCA or similar actions have faced major issues with supply; however, in the more fragmented sign industry, DOCA companies like Clear Skies will find it easier to get alternative supply and keep trading.
Following the DOCA at Clear Skies, the Skope Group and its director Orren will now buy Clear Skies for $100,000. Orren is in fact already described by the Clear Skies administrator as “may be a shadow / de facto director” of Clear Skies, which was trading as Skope Group Manufacturing Services. Both she and her husband Charles are, according to a document seen by Print21, directors of another Clear Skies trading business, Scream Visual, which shares the same ABN as Clear Skies.
The deal to buy Clear Skies was conditional on the DOCA getting through. Clear Skies was being funded in administration by Skope Group Services. Without Skope funding Clear Skies would have been wound up.
Clear Skies sole director and shareholder was Robert Price, but the administrator says he was installed in his position by Orren. Ann Orren and her husband Charles are also listed as directors of Scream Visual Manufacturing Services, another Clear Skies trading name. The Orrens mainly operate from an office in the Campbelltown premises.
According to the administrator Orren's involvement at Clear Skies meant she signed the cheques, signed the leases, liaised with the accountants. Almost all work at Clear Skies trading entity Skope Group Manufacturing Services was for Skope Group – it was effectively the manufacturing arm of Skope Group.
Under the set-up Skope Group won signage orders, then farmed out the manufacturing of the signs to Clear Skies, under its Skope Group Manufacturing Services (SGMS) name. The signs were produced, with an invoice sent to Skope Group for materials and labour plus 25 per cent, a price the administrator described as ““insufficient for the company to meet its overheads and trading obligations”. At least four fifths of SGMS work was for Skope Group, at a rate the administrator says "may be uncommercial". Skope Group was then able to go to market with product that was able to be sold at an attractive rate.
Then over the last three years the Manufacturing Services business accumulated huge debts, totalling $2.3m. The company was then put into VA, got its DOCA to keep going with the 70 per cent cut to its debts, and will now be bought by Skope for $100,000.
The administrator Simon Thorn scotched attempts to present Skope Group and Clear Skies as unrelated, saying, "My investigations have revealed that Skope may be considered a related party."
Sign producers are also reading the administrator's report that says Clear Skies may have been trading while insolvent. He says the insolvent trading claim may be as high as $2.175m.