Five Boroughs liquidation to leave IRD, staff, suppliers out of pocket
The liquidator for popular Wellington eatery Five Boroughs says employees, the tax department and suppliers owed at least $444,000 will get shortchanged in the administration with a smaller-than-expected return from the residual assets.
Glassescases, trading as Five Boroughs, was placed into liquidation this month owing $32,400 to staff in holiday pay, about $360,000 to Inland Revenue, $14,000 to ANZ Bank as an unsecured creditor and $27,000 to suppliers.
Liquidator Jessica Kellow of ShephardDunphy said they were currently in negotiations with a prospective buyer to realise the assets in the former restaurant. In the first liquidator's report the value of those assets was estimated at $50,000, or about 11 percent of what was owed, but Kellow said the outcome was "not going to be at that level."
The ShephardDunphy report said the restaurant was under-capitalised from the get-go which meant its fit-out was paid from trading sales. That led to the firm falling behind in meeting its tax bill, rent and supplier invoices, while at the same time, margins were squeezed as the firm struggled to manage rapid sales growth, expanding to 19 staff from just four when it opened.
"The directors sought to enter into a compromise arrangement with Inland Revenue, however, this was rejected," the report said. "Upon taking independent advice, the shareholders resolved to place the company into liquidation."
Five Boroughs is still trading through a different holding company, out of premises formerly called Five & Dime. Kellow said ShephardDunphy had looked into whether the case could be classified as a phoenix company, but Companies Act provisions meant it couldn't.
"The company that is now trading as Five Boroughs has been incorporated for quite some time, which prevents it being a phoenix company. We're looking to the value of any intellectual property," Kellow said. "It has been incorporated for more than 12 months, and the Companies Act says that a phoenix company must be incorporated within 12 months of changing its names. It doesn't breach the phoenix provisions because they've used an old company."
Kellow said it was too early to know whether there had been any voidable transactions entered into. The first report shows about $96,500 had been drawn from the shareholders current accounts as at the Jan. 8 liquidation, and while a company vehicle was listed with a $27,900 book value, the liquidators don't expect there will be any equity remaining.
The report also says Five Boroughs has three secured creditors: it owes $9,200 to Flexigroup for kitchen equipment, an unknown amount to Branded Finance for the vehicle, and an unknown amount to Silver Chef Rentals for kitchen equipment.
Employees and $247,000 of what IRD is owed are ranked as preferential creditors, while the remaining $115,000 of the IRD debt, $14,000 owed to ANZ Bank and $27,000 to trade creditors is ranked as unsecured.