Ailing regional airline JetGo may have been trading insolvent for almost two years before it filed for administration, during which time it set up a number of new regional flight routes including those in and out of the Illawarra.
The report to creditors – who are owed about $38 million with most unlikely to receive a cent if the company is wound up this week, as recommended – reveals a damning picture of the airline’s financial health over several years.
In a report to the Australian Securities and Investments Commission (ASIC), administrator Jonathan McLeod said his firm’s analysis of the company’s balance sheets showed the airline may have traded while insolvent “since at least June 30, 2016”.
During this time, the administrators said JetGo’s “working capital ratio” was less than one, which means the company may have had insufficient assets to meet its current liabilities.
They also called into question the accuracy of the company's financial statements, saying they were "unascertainable at this juncture and in some cases clearly appear incorrect".
Shellharbour council – which is owed more than $400,000 by JetGo – first revealed it was looking into a new passenger flight service at the Illawarra regional airport in February 2017. Flights began in October that year.
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Mayor Marianne Saliba was adamant there had been “no sniff of financial trouble” when her council began negotiating with JetGo.
“Unless you are buying a business or unless it’s a publicly listed company, you don’t have the ability of looking into people’s financials,” she said.
“We looked into JetGo, we saw how long they had been operating, we knew they were operating out of other regional areas and there was nothing about insolvency or financial difficulty at the time of the decision.”
“From my perspective, I believe we did everything humanly possible to ensure we were selecting an airline – the only airline at the time – that was willing and able to provide the flights out of Albion Park.
“If we knew that they may have been trading insolvent, we would never have started a relationship with them.”
The administrators say creditors like Shellharbour council may be able to take legal action over the alleged insolvent trading.
If appointed after a vote being held in Brisbane on Friday, liquidators may be able to institute debt recovery proceedings against founder and CEO Jason Ryder, secretary Arron Mulder and the managing director Paul Bredereck, who – according to the report – “may be classified a shadow director”.
However, the report says initial funding required for this legal case could be up to $120,000 and the “substantial quantum” of money owed meant administrators said they could not estimate how much would be recovered.
Cost recovery aside, the report lists three offences under the Corporations Act which may have been committed by JetGo’s senior management, including a breach of their obligation to keep financial reports, breach of directors duties and the failure to prevent insolvent trading.
If we knew that they may have been trading insolvent, we would never have started a relationship with them.Shellharbour mayor Marianne Saliba
Mr Ryder – the company’s director – has a history of running failed aviation or tourism companies, with four businesses where he was a director either deregistered or put into liquidation between 1999 and 2002.
However, despite this track record, he won't be banned from managing future companies because the other four failures happened more than seven years before to JetGo went into administration, the report said.
Asked in a questionnaire the reasons for his company’s failure, Mr Ryder attributed it to the “collapse of the aviation industry in 2000 due the failure of Ansett and associated works; undercapitalisation; and loss of contracts due to the effect of the aviation industry collapse”, according to the administrators.
In contrast, they believe the failure was caused by poor strategic management of cash flow, poor preparation of timely and accurate financial information, the company’s inability to generate enough cash to pay its debts and failed investments.
Creditors will meet on Friday in Brisbane to vote whether to wind up the company.