The Australian Taxation Office (ATO) has taken a haircut on $2.11 million owed by the companies behind four of Surfers Paradise’s biggest nightclub and dining venues after accepting an offer of about 22.5c in the dollar for the debt.
The venues, owned by the Gold Coast-based Artesian Hospitality Corp, have been struggling for the past two years to repay mounting debts to the ATO in the aftermath of COVID lockdowns.
The ATO, the sole creditor to the four companies that operate Cali Beach, Havana RnB Nightclub, Tempo Nightclub and Surfers Pavilion, has accepted a payment of $475,670 for the $2.11 million debt to be paid in instalments over the next 12 months.
The move follows a restructuring proposal presented earlier this month to the ATO by Nikhil Khatri of Worrells, who was appointed restructuring practitioner to the four subsidiaries - Cali Enterprises (trading as Cali Beach), Urban Loungebar (trading as Havana), Sincity Nightclub (trading as Tempo) and Surfers Pavilion Gold Coast.
Artesian Hospitality, which is headed by former lawyer Matthew Keegan, is one of the country’s biggest privately owned hospitality groups. It also operates Brisbane’s The Gatsby and the ironically named Boujee x The Tax Office - located in Fortitude Valley’s historic GPO building – none of which are involved in the restructure proposal.
Artesian made a splash in 2020 when announcing plans for the Cali Beach venue in the middle of the pandemic with Keegan staking his faith in the strength of the domestic tourism market for undertaking the venture on the rooftop of the X Galaxy retail centre in Surfers Paradise with the business said to have thrived over the first two years.
The venue officially opened in September 2021.
The appointment of Khatri on 23 November came after the Artesian companies continued to struggle with the ATO debt towards the end of last year, despite a return to profitability driven by a culling of head office staff between April and June.
Khatri presented his restructure proposal to the ATO on 5 January this year, with the ATO accepting the proposal on Australia Day last week.
While Cali Enterprises had the biggest debt to the ATO, totalling $911,024, followed by Surfers Pavilion Gold Coast at $822,915, each of the entities presented with debts of less than $1 million which qualified them for the Small Business Restructuring (SBR) provisions of the Corporations Act.
“The decision to adopt the SBR process was precipitated by the director resolving that the companies were, or were likely to become, insolvent,” says Khatri in his proposal presented to the ATO as creditor.
The sole director of each of the companies is Tim Martin, the group general manager and partner at Artesian Hospitality.
In documents filed with the Australian Securities and Investments Commission, Martin explains the issues confronting the Artesian Hospitality businesses over the past few years, citing the ‘lasting impacts’ of the ‘financial strains’ caused by COVID lockdowns.
Rising interest rates also hit profitability towards the end of 2022 along with a drop in the number of Aussies holidaying at home as international travel resumed.
In FY23, BAS statements were gradually ‘catching up’ and ‘a debt emerged during a period of reduced cashflow’, Martin says.
Even after downsizing Artesian’s head office staff and reducing overheads to conserve cash, Martin reveals that reduced revenue led to ‘delays in meeting tax lodgement obligations and created operational complexities’ for the group.
“Despite the challenges, the business continued to meet its commitments to employees, suppliers and other creditors (such as the landlord) in order to attempt to repay the debts to the ATO,” says Martin.
He adds that attempts by the companies to secure a payment plan with the ATO for the debts were fruitless and that the company made payments to reduce the debt ‘as and when it could’.
Martin also reveals that business conditions have improved over the past year. Revenue across the venues in October and November was down between 10 and 15 per cent compared to the same time in 2022, but sharply lower than the 30 to 35 per cent fall in business recorded in the first half of the year.
Martin adds that the businesses can continue to be profitable if they can address the outstanding debts to the ATO.
The ATO’s decision to accept the restructure proposal was informed by Khatri’s report which estimates the ATO is more likely to receive a better return from accepting the restructure proposal than pursuing liquidation of the companies.
“The accounts support a proposition that the companies have historically traded at a profit and have been impacted by the external factors discussed,” Khatri says in his report.
“The decision to enter into the SBR was a difficult decision for the companies and the director advised that the companies (are) attempting to remedy (their) financial situation in good faith.
“Forecasts sighted by my office indicate that the companies will be able to continue trading as a going concern and meet (their) future obligations should the restructuring plan be accepted.”
Business News Australia has sought comment from Artesian Hospitality in the wake of the ATO accepting the restructure proposal.
Get our daily business news
Sign up to our free email news updates.