Minutes lodged with ASIC of last month’s meeting between creditors and KPMG administrators David Kidman and Martin Lewis reveal three creditors – including the Australian Taxation Office – rejected a proposed Deed of Company Arrangement for The Living Room Bar, Zonfrillo’s company which operated the internationally acclaimed Rundle St restaurant Orana.
Orana closed its doors in March, citing the coronavirus pandemic, but never re-opened. The celebrity chef placed the company into administration in October, along with Blackwood Bistro Pty Ltd, the operator of Orana’s downstairs sister eatery, which closed suddenly in late 2019.
Creditors last month voted to accept Zonfrillo’s proposal, which would see all staff paid and other unsecured creditors sharing $101,000 between them – an amount the administrators estimated would yield between 6.6 to 10.1 cents in the dollar for Orana’s creditors and between 5.0 to 8.3 cents in the dollar for Blackwood’s backers.
The administrators recommended both settlement offers provided for “a more certain outcome” than the liquidation of the companies – which would have occurred if the DOCAs were rejected – saying: “We are of the opinion that creditors should accept the proposed DOCAs.”
Voting rights were also afforded for several “related party loans” to the businesses from Zonfrillo and his wife Lauren, who documents reveal were owed $170,000 and $523,000 respectively by The Living Room Bar, while Lauren’s company Pulse Collective was owed $11,000 and “Zonfrillo Consulting” claimed $674,000 – a total of $1,378,000.
Blackwood owed a total of $842,000 in related party loans – including $657,000 to the Living Room Bar (Orana), $60,000 to Zonfrillo as “Director” and $125,000 to Zonfrillo Consulting.
The minutes of the creditors meeting reveal the proposal to accept the Living Room Bar DOCA was carried by nine votes (totalling $1,424,844 in debt) to three (totalling $511,360).
However, attendee Vishnu Sinnathamby, representing the Deputy Commissioner for Taxation, requested “the chairperson advise as to the number and value of related party creditors and non-related party creditors voting for the resolution”.
This revealed that the four related party creditors – effectively the Zonfrillos and their related companies – accounted for $1,377,929 of the total voting to accept the DOCA, while the remaining five unrelated creditors accounted for just $46,915.
In such a poll, a resolution is carried if it is passed by a majority in both number of voters and total value of debt – if the majority in number and the majority in value of total claims vote differently, the administrator has the deciding vote.
For the Blackwood DOCA, the Director (Zonfrillo) and Zonfrillo Consulting (owed $185,000 between them) voted to accept the DOCA, while the Living Room Bar (Orana, owed $657,000) abstained.
One other unrelated creditor, owed just $1636, voted to accept the proposal, while one (the ATO – which was owed $29,034) voted against.
At the end of the meeting, Sinnathamby “commented that he would like it noted that as the general proxy holder for the deputy commissioner of taxation, he voted against the DOCA resolutions in respect of both The Living Room Bar and Blackwood Bistro”.
Lisa Andonis, for the Rundle East Corporation – the Maras-owned landlord of the properties – also asked that it be “noted that as general proxy holder for Rundle East Corporation she voted against the DOCA resolution in respect of the The Living Room Bar”.
The minutes also note that Andonis “commented that potential breaches of director’s duties won’t be investigated in a DOCA scenario and advised that is was her client’s view that the funds to be contributed in the DOCA proposal for each of the companies was insufficient”.
Maras Group managing director Steve Maras said today “we’re considering our options” in terms of potential legal action.
“The DOCA is what it is – but we’ll consider the options available to us,” he said.
At the meeting, Sinnathamby also queried why the administrators considered the date of insolvency for both companies to be November 25 last year, with Kidman replying that “Blackwood ceased trading in November 2019 and that both entities were intrinsically linked, including with Blackwood as a sub-tenant of The Living Room Bar”.
“Furthermore, the date of 25 November 2019 was the date on which each of the eateries entered into a revised payment plan with the Australian Taxation Office – which they both subsequently breached in early March 2020,” the minutes state.
Andonis also queried the removal of a caveat on the sale of the Zonfrillo’s Adelaide Hills property, and was told “it was the administrators’ understanding that the caveat was placed on the director’s former house by a creditor of Blackwood Bistro, Thorn Business Finance, in respect of a personal guarantee – which presumably provided Thorn the ability to place the caveat on the former property”.
“The chairperson advised creditors that the director and his wife sold the house in the Adelaide Hills during 2020 and the caveat was discharged following Blackwood Bistro paying the amount of $46,000 owed to Thorn,” the notes state.
“The chairperson advised that such a transaction may give rise to an unreasonable director-related transaction for The Living Room Bar or an unfair preference for Blackwood Bistro, noting in the report that both transactions are only potentially recoverable in a liquidation scenario and are unlikely to result in a net return to creditors.”
Sinnathamby queried whether The Living Room Bar “could have been insolvent earlier than November 25, 2019 – and as far back as June 2019”, with Kidman advising “it was possible that the companies may have been insolvent earlier than November 25, and ultimately it is a date decided by a court”.
“The chairperson also advised that even if the companies were insolvent before November 25, it did not change the fact that the director has no material assets to meet any insolvent claim that may be brought,” the minutes state.
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