Pity, fury and white line fever: The resuscitation of Melbourne Rebels

Melbourne’s who’s who of rugby gathered on Tuesday at the city’s oldest and one of its finest private venues, the Athenaeum Club, for a luncheon where the star invite was former Wallabies captain Stirling Mortlock.

Mortlock, also inaugural captain of local club the Melbourne Rebels, drew a strong crowd, but it was notable who was not there. Absent was the man who until January was the club’s president and regarded businessman, Paul Docherty.

After lunch the crowd moved to the club’s bar for some drinks and the discussion soon turned to the fortunes of the club and the fallout from the collapse of 13 businesses managed by Docherty’s BRC Group investment house.

The question being asked was simple: “How could a business empire with so much investor interest implode?”

In the past, Docherty had been a money-raising machine. Bringing in more than $100 million of new investment from some of Melbourne’s richest families, like the Myers and the family of business magnate Leigh Clifford, into businesses co-owned by BRC and as diverse as a cleaning products seller, a dental-aligner maker, a 3D printing group and an AI-driven home moving platform.

Internal documents seen by this masthead show that at the end of the 2023 financial year the BRC Group of businesses were together worth around $300 million.

Now it appears those valuations may have been overly rosy. Reports prepared by the administrators and liquidators into various entities in BRC investments indicate the assets across the group could be less than $50 million and that many of the valuations were based on extrapolating the company’s values from share sales. The reports show the total bill owed to creditors is $131 million and could grow. Across the businesses the tax bill exceeds $20 million.

The Rebels alone owe more than $23 million to creditors, including $11.6 million to the Tax Office. At the time of its collapse the club had $17,300 in the bank, and a handful of assets mainly consisting of gym equipment, two cars, and office furniture.

As Docherty’s empire crumbled, directors in some BRC-invested entities received formal notices from the Tax Office, known as a director penalty notice, as first reported by the Australian Financial Review. The list of affected directors includes five from the Rebels’ club: barrister Tim North, KC, former Minter Ellison lawyer Georgia Widdup, one of the country’s best forensic accountants, Owain Stone, rugby administrator Neil Hay and business doyenne Lyndsey Cattermole. The directors all declined to comment on the club’s affairs. Docherty did not respond to a list of questions sent by this masthead.

The notice makes directors personally liable for the tax debts of the companies if they go unpaid. According to people who have seen the notices, they covered missed payments for unpaid superannuation, unpaid amounts of money deducted from staff wages for income tax and unpaid GST.

“DPNs” are serious business and the Tax Office rarely compromises on these sorts of positions. To force a director to pay the bill it can issue garnishee notices or force the sale of personal property. It’s this element that has given the demise of Docherty’s business empire a feeling of white line fever.

Across the CBD, on the same day as the Athenaeum lunch, Rebels director Tim North was locked in a meeting with Rugby Australia representatives, including CEO Phil Waugh, who had dialled in on zoom from Sydney. The tense meeting was an attempt to resolve a legal impasse between the Rebels and Rugby Australia about the future of the club.

The club’s eight directors, led by North, are claiming the peak body engaged in misleading and deceptive conduct, and are responsible for the club’s $11 million tax debt due to their partnership agreement.

No decisions were made at the lengthy Tuesday meeting, but a source briefed on discussions said there was an understanding the directors would take their claims to court if the outcome of the club’s voluntary administration process did not swing in their favour.

This legal battle is central to improving a rescue package for the club. This masthead can reveal that the club’s directors have contemplated a draft deed of company arrangement but that the plan, although not formally submitted, did not have enough of a pay-out for the club’s suppliers, was contingent on Rugby Australia handing back the licence to the club and did not, at the time it was considered, have the explicit support of Rugby Australia or the Tax Office. The directors now hope they will win their legal argument and force Rugby Australia to meet their demands, while drumming up a deed of company arrangement which would give creditors a better deal than winding up the club.

Sources involved in the discussions to rescue the club were scratching their heads at what they saw to be a counteractive approach: go to war with the peak body, while also proposing a deal reliant on that body handing back the Super Rugby licence.

And even if everything goes the way of the directors, there are still questions about how the club could exist past the next few years without additional funding injections from the state and federal government. Ever since its 2011 inception, the Rebels has always been a loss-making operation.

One novel deal being considered by supporters of the club’s directors would require federal Treasurer Jim Chalmers arranging a grant of $11 million to the club.

That money would then be immediately repaid to the Tax Office to clear the debts and the board’s high-profile directors would then resign from the board. Under this scenario, millions more would be required from Rugby Australia and potentially the Victorian government to support the perpetually loss-making club to get back on its feet or help to form a new club, such as the previously floated Rebels Pasifika merger. Other funds would be sourced to form a deed of company arrangement that would offer a cents-in-the-dollar deal to the club’s often longtime supporters.

Some of the club’s suppliers have blanched at the idea that they will take a haircut while a rescue package preferences the Tax Office to clear out the director penalty notices over their businesses, while others remain supportive of the club and the sport.

Dan Smith, chief operating officer for O’Brien Group Australia – which owns a range of venues including Icebergs in Bondi and provides hospitality services – said the company had worked closely and collaboratively with the Rebels over a number of years.

“We have been strong financial supporters of the club since their inception including the provision of payment terms that suited their seasonal cash flows. We are obviously disappointed with the situation the Rebels have found themselves in but at this stage we will await the outcome of the administration process.”

Underscoring the woes of the Rebels are broader issues concerning the state of rugby union. Alongside Rugby Australia’s own financial problems, the Super Rugby Pacific tournament is not performing as it should. Super Rugby chair Kevin Malloy acknowledged the bottom line at the February’s launch for this year’s competition: “We’ve got to get stadiums full again.”

Asked about a potential bail out, a Victorian government spokesperson said: “The government is aware the Melbourne Rebels are working closely with Rugby Australia following the club entering into voluntary administration.”

The federal treasurer’s office declined to comment.

Back at Docherty’s business empire, things are looking much more bleak.

Directors, advisers and creditors to various parts of Docherty’s business empire speaking on the condition of anonymity have expressed frustration with the push to save the club given the huge amount of financial devastation left by the collapse of 13 companies associated with his investment house BRC Group.

“What I feel is pity and fury. I swing between them”, says one former associate of Docherty.

“There was zero malice on the part of Paul, it definitely wasn’t intentional but it’s very distressing.”

Over the past nine months, Docherty has sought to fight off claims by creditors – particularly the tax man – as business began to fray in the harsh economic conditions caused by interest rate hikes. This masthead can reveal that two groups – 3D printing group 3DMeditech and dental aligner Smilestyler – were struggling to meet customer orders and pay debts from around April or May last year, and efforts to bring in new investors failed. The separate liquidators to Smilestyler and 3DMeditech have said in their reports to creditors that both groups – which were related parties – may have been insolvent for at least 18 months.

Docherty has tried, so far in vain, to drum up a new deal to support these various entities. It’s a similar story for many of the other entities in administration associated with the BRC group which are either in liquidation or headed that way.

Last month, a deal to find a new buyer for BRC-managed dental aligner group Smilestyler Solutions failed after an investment from a large life sciences investor did not materialise. Under that deal, employees and Leigh Clifford’s family, which include daughter Widdup, and their investment house Triple Eight Capital would have received 100¢ in the dollar. All other creditors were to receive as little as 8¢ to 10¢ in the dollar.

There has also been speculation BRC would sell a large development site in North Melbourne across the road from Arden Oval to pump cash into the business.

It’s unclear if that would be possible. The land titles for the $70 million site remain in the name of the original owner, vintage car dealer Nick Theodossi despite BRC lodging a caveat nearly two years ago on the property to cover its $7 million deposit on site. Theodossi did not respond to inquiries.

For other parts of Docherty’s businesses, administrators to his companies have been able to execute some deals, but there is little left for unsecured creditors. Earlier this month, administrators from KPMG sold Hiro Brands’ businesses – including Orange Power, Organic Choice, Trix and others – to retail brand owner Tempo. Administrators from EY overseeing the workout of Hood Movetech and Foxie Group, the companies behind BRC’s AI-driven home moving platform, are also prepping a sale with creditor Energy Australia expected to pick up the asset.

Before this sorry saga will end, the Rebels problem will need to be resolved. In what appeared to be a move towards a quiet exit from the sport, this week Stone and Hay told the Rugby Victoria annual general meeting they would not stand for reelection.

A deed of company arrangement of some sorts was scheduled to be delivered to PwC on Friday night. A meeting of key creditors will also be held on Monday where there is hope that at least the issues between the administrators, Rugby Australia and the Rebels directors might reach a conclusion. If not, one hell of a legal battle is going to ensue.

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