Regional grant scheme: business awarded $750,000, then goes bust six months later

Sarah Martin Chief political correspondent
Photograph: Lukas Coch/AAP

A camper trailer company in the marginal seat of Gilmore was awarded a $750,000 federal government grant at a time that it may have been trading while insolvent, Guardian Australia can reveal.

The grant, awarded under the regional jobs and investment program that was subject to a scathing report from the auditor general, was given to Off Road Camping Accessories, based in the NSW south coast town of Moruya, to develop a new type of composite panel to be manufactured for camper trailers.

Under the requirements of the grant scheme, applicants were required to spend a matching amount to the government contribution, with the guidelines emphasising the importance of leveraging investment from the private sector.

But six months after the company’s $1.5m project was announced as successful under the program’s business innovation stream, Off Road Camping Accessories was placed into administration and the company’s 50 employees were made redundant.

Related: Tasmanian cafe and Victorian bike path breach Coalition's regional grant scheme

The company was sold for $580,000 to Eagle Outdoors in November, which has since re-employed some of the workforce.

According to the administrator’s report, it was “likely” that Off Road Camping Accessories was trading insolvent before he was appointed on 10 October, saying “many liabilities were overdue and remained unpaid as and when they fell due at that date”.

While saying it was a “complex assessment” to pinpoint precisely when the company began trading while insolvent – which is against the law – the administrator, Tim Heesh, said the company showed some traits as early as June 2017.

“Although there was an injection of cash from the director’s family, these cash injections were insufficient to return the Company to solvency,” Heesh’s report to creditors said.

“It appears based on my preliminary review the Company experienced continued losses since at least 30 June 2017 [and] the Company had negative asset to liability ratios since at least 30 June 2017.”

He noted that creditors were paid outside trading terms, and there was evidence of “special arrangements” being made for certain debts.

“Following my investigation into the affairs of the company, it is my view that the company appears to have traded whilst insolvent.”

If the directors, Michael and Wendy Hackett, were found to be trading while insolvent, they might be found to be personally liable for debts incurred from the date of insolvency until the date of the administrator’s appointment.

In his report to the Australian Securities and Investments Commission on the liquidation of the business, Heesh said he had identified “potential offences” that would be reported to Asic.

The administrator’s assessment of the company’s financial situation reveals that claims against the company for employee entitlements totalled $807,000, which included owed wages and superannuation, with a separate debt owing to the tax office of $124,000.

Total liabilities were more than $5m, with unsecured creditors owed $2.7m.

Given the sale price of $580,000, Heesh said, it was not expected there would be sufficient funds from the sale to pay unsecured creditors.

Under the application process for the RJIP scheme, applicants were required to provide to the department an accountant’s declaration that stated the applicant was “able to fund its share of the cost of the proposed project”.

As revealed in Guardian Australia last week, another grant recipient in north Queensland, Dindarr Pty Ltd, is currently the target of deregistration by the corporate regulator and is “losing money”.

The director of Dindarr, Peter McAllister, told Guardian Australia he was never asked to show he had matching funding on hand, only that he had the ability to borrow it.

The auditor general’s report raised concerns about the requirement to provide an accountant’s declaration, finding that there were 193 applications where “issues were identified” with the requirement.

“Issues included missing Accountant Declarations, declaration not provided as per the guidelines, declaration with incorrect figures or declaration incomplete (missing signature or other required information),” the audit said.

From the 193 applications with issues identified, the assessors contacted the applicant on 51 occasions, with 17 of those proceeding to “merit assessment” without the issue being resolved.

The audit report, which found a ministerial panel declined to fund 28% of grant applications recommended to them by the department, and approved 17% of applications that had not been recommended , also raised concern about the assessment process.

It said an assurance review undertaken by the department identified that “applicant claims were being taken at face value without appropriate scrutiny”.

Labor will move a production of documents order in the Senate on Wednesday, requesting the government to provide details of which projects were approved against the recommendation of the department.

The shadow infrastructure minister, Catherine King, questioned whether the ministerial panel performed “any due diligence” when administering the more than $220m in grant funds, most of which went to private businesses.

“It’s time for the deputy prime minister to start being honest with the Australian people and provide a full explanation of the ministerial panel’s approach,” King said.