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Gold Coast-based craft beermaker Black Hops Brewing looks set to be placed into liquidation and its assets sold off after failing to secure a rescue proposal from the brewer's directors, as the administrators revealed that the company could have been insolvent as far back as December 2022.
But the company, which collapsed on 28 March this year with debts of $7.32 million, has drawn interest from “multiple” parties who have lined up to secure its assets with a sale contract expected to be secured within days.
The administrators have concluded that Black Hops Brewing is presently insolvent and that in the absence of a deed of company arrangement (DOCA) being put forward by the directors, “creditors would be best served if the company is wound up and placed into liquidation”.
The decision will be put to a vote at the second creditors’ meeting scheduled for Wednesday, 15 May 2024.
Administrators David Mansfield and Tim Heenan, of Deloitte Turnaround & Restructuring, have revealed in their report to creditors that unsecured creditors to Black Hops Brewing are owed $4.127 million, the bulk of which is for the Australian Taxation Office (ATO) in the form of $3.2 million in alcohol excise duty and BAS payments.
Remaining unsecured creditors are owed just over $1 million, while the company’s employees are owed $387,871 in entitlements.
At this stage administrators are unable to indicate a potential return to creditors from a sale of the assets.
“We note that due to the ongoing sale process, we are required to withhold various asset values so as to not prejudice any ongoing sale of the company’s business,” the administrators say in their report.
The major secured creditor is Judo Bank (ASX: JDO) which is owed $3.22 million, comprising almost all of the secured debt owed by the company.
The balance sheet released by the administrators shows that Black Hops Brewing has net assets of about $6 million, although most of these are non-current and weighted towards its production facilities.
Directors of the company have blamed the company’s failure on the “cash flow impact caused by reforms put in place by the ATO to support businesses impacted by the COVID-19 pandemic”.
The deferral of up to $1.8 million in excise tax debts for up to six months hit the company hard when that debt fell due amid falling revenue.
“We note that, based on our review of the company’s books and records it appears that these deferred amounts were ultimately paid in or around February 2022, and the current outstanding excise tax debt of $1.9 million was accrued after that date,” say the administrators.
A general drop in beer consumption nationally has also been blamed for the company’s financial fall, leading to sales falling 10 per cent in FY23 and 20 per cent in the FY24 year to date.
Investors pour in $6.18m since inception
Since inception in 2014, Black Hops Brewing has raised $6.18 million from investors with the business said to be worth $65 million following a record-breaking crowdfunding campaign in 2022 that raised $2.2 million from almost 1,000 investors in 24 hours.
Black Hops was founded by Daniel Norris, Michael McGovern and Edward Oldfield, who initially undertook a non-equity crowdfunding campaign in 2016 to help fund the company’s first taproom at Burleigh Heads.
Oldfield and McGovern remain the company’s biggest shareholders with 29.83 per cent and 10.82 per cent holdings respectively.
Norris, who formerly held as many shares as Oldfield, parted ways with the company in February last year and the company bought back his shareholding of four million shares for a total of $1 in January this year.
Black Hops expanded with a new Gold Coast brewery and tap room at Biggera Waters in 2019 when it started selling products interstate to hospitality venues and retail outlets.
Following the acquisition of Semi Pro Brewing Co in 2020, the company launched its Brisbane taproom and in 2021 added a new venue on the Gold Coast - the AWOL Barrel Aged Beer & Taproom in Burleigh Heads, which was later rebranded as the Haven Bar & Restaurant. The Haven Bar venue has since been closed.
Prior to the appointment of administrators, Black Hops Brewing had 59 staff operating from three locations, including a tap room at East Brisbane which was closed after administrators were appointed due to an issue with the lease.
The administrators reveal that Black Hops has been running at a loss since FY22, with the cumulative trading losses over the past three years currently sitting at $2.85 million.
The company last posted a net profit in FY21, totalling $867,233. This was followed by a loss of $1.45 million in FY22, despite revenue spiking to a record high of $16.26 million.
Revenue dropped to $14.89 million in FY23, leading to a loss of $854,306 while the FY24 year to date shows revenue of $8.82 million and a running net loss of $544,531.
The administrators reveal that sales for FY24 are tracking 20 per cent lower than the previous year. While gross profit margin has remained steady between 76 per cent and 79 per cent, the company’s profitability suffered as costs failed to fall in line with the drop in revenue.
"Our investigations are preliminary and are at an early stage, however, it is our view that the company was insolvent by at least 1 December 2022," say the administrators.
"A cause of action for trading whilst insolvent may potentially exist against the current and former directors of the company, however, further investigations are required should a liquidator be appointed to the company."
The administrators have also investigated transactions that may be classed as voidable which may be further pursued by a liquidator.
Despite the troubles facing Black Hops Brewing, the administrators have received 28 inquiries from parties interested in buying the company’s assets – with four non-binding offers received and three of these parties shortlisted.
“If a suitable offer is selected to proceed, we expect that an agreement for the sale of the company’s business and assets will be executed on or around 10 May 2024 (if not earlier),” say the administrators.
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