Highlights
- Derrimut 24:7 founder Nick Solomos placed largest company in gym network into voluntary administration Thursday
- Decision came days after proposed rescue deal with billionaire Adrian Portelli collapsed
- Gym chain faces debts of almost $30 million, including $15.4 million owed to the tax office
- All 26 Derrimut gym locations will remain open and staff will still be paid.
Rescue Deal Falls Through
Derrimut 24:7 gym chain founder Nick Solomos put his biggest company into voluntary administration on Thursday, just days after a rescue deal with billionaire businessman Adrian Portelli fell apart. An internal message sent to staff revealed the decision; it said all gyms would remain operating normally despite the business owing close to $30 million. Solomos wrote to employees that this was not an easy choice to make, but he believes it’s the right step forward.
The owner of the gym said that voluntary administration provides them with the best opportunity to restructure the business, protect jobs, and set up for a stronger future. He assured staff their wages would continue to be paid on time. He also assured members they could continue to use all 26 Derrimut locations across the network. Solomos said a new investor had come on board to help during the administration period but did not say who this investor is. Stephen Dixon from the insolvency firm HM Advisory was appointed as administrator according to official company records.
Tax Office Seeking Millions
The Australian Tax Office has been applying legal pressure on Derrimut for some time, seeking to claw back $15.4 million owed in unpaid tax, superannuation and penalties from the operating company and a related business. Last week the ATO agreed to a four-week delay of a liquidation bid, giving Derrimut more time to come up with a plan to deal with its mounting pile of debts.
But several major creditors did not like this delay. Energy provider AGL, former landlord Bourke Street Properties and fitness equipment supplier Life Fitness all opposed the four-week extension, seeking instead a shorter delay and more certainty about whether Derrimut could really continue to trade in the longer term. Within hours of the court giving Derrimut the delay it sought, Adrian Portelli was confirming he had pulled out of his planned investment, saying he had failed to reach an agreement with the company’s owners about how it should be moved forward.
Company Spent Money on Personal Items
Analysts estimate Derrimut will need at least $30 million to pay off debts across its main businesses to the tax office, landlords, power suppliers, tradespeople, and equipment companies. In September, The Age revealed that despite rapid growth, the business had stopped making crucial payments. It wasn’t paying tax bills, putting money into staff superannuation accounts, nor paying suppliers and landlords what they were owed.
The newspaper also discovered that company bank accounts were utilized to cover personal expenses, including mortgage repayments, vehicle purchases, and the provision of private allowances to associates in the business. Derrimut 24:7 saw rapid expansion in recent years, with outlets opening across Australia. However, it now seems the rapid growth led to financial issues that the business was unable to control. With an administrator now in charge, the company will have to work out how it keeps running while paying back what it owes.
FAQs
Q: What does voluntary administration mean for Derrimut gyms?
A: Voluntary administration means an independent expert takes control with a view to restructuring the business. All 26 Derrimut gym locations remain open and members can continue using them while this occurs.
Q: Will Derrimut staff still get paid?
A: Yes, founder Nick Solomos promised that the wages of staff would continue to be paid during the administration period.
Q: How much money does Derrimut owe?
A: Derrimut faces debts of almost $30 million. This includes $15.4 million owed to the Australian Tax Office for unpaid tax, superannuation and penalties.
Q: Why did Adrian Portelli pull out of the rescue deal?
A: Billionaire Adrian Portelli said he couldn’t reach an agreement with Derrimut’s owners. He pulled out of his planned investment just hours after the court gave the company more time to sort out its debts.
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