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Publishers call for new probe into collapse of media agency Hammond & Thackeray

Medical publishers are pressing for fresh investigations into last year’s collapse of media agency Hammond & Thackeray after being told they will not see a cent of the $1.4m they are owed.

Grim confirmation of the collective losses emerged in a liquidators report following the 35 year old health and agriculture media agency’s failure which also revealed there were “indicators” the business may have been trading whilst insolvent.

But, to the frustration of creditors, that can only be explored further if they stump up additional funds for a more detailed analysis of H&T’s finances.

Liquidator Andrew Cummins, from BRI Ferrier, said such an investigation, combined with any subsequent legal proceedings, would cost between $500,000 and $700,000.

Creditors described the situation as “absurd”.

Media firms impacted by the collapse in December of H&T include Australian Doctor Group which is owed $132,000, Medicine Today, which is $108,000 out of pocket and The Medical Republic publisher The Moose Republic, which has outstanding debts owing of $91,000.

The Intermedia Group and Australian Pharmaceutical Publishing are owed $28,000 and $53,000 respectively while Fairfax subsidiary Agricultural Publishing is owed almost $120,000.

Media representation firms in the healthcare sector were also hit hard with Tremain Media chasing almost $36,000 and Cole Media and Carbine Media each owed around $8000. Nunn Media was listed as being owed $334,000.

Many other suppliers were also stung, with unsecured creditors owed a total of $3.5m.

Cummins had warned creditors in January they were unlikely to see any money, a reality confirmed in a matter-of-fact update issued by the liquidator.

As creditors ponder their next move, Steve Robson, who headed H&T as it struggled to stay afloat, has a new “business development” role at consultancy firm Blackdot.

Blackdot acquired the assets of H&T from the liquidator in March for $17,000, and employed nine staff, including Robson. It also now controls the Healthy Thinking Group (HTG) brand of which H&T had been the core operating business until its demise.

Post collapse

Mumbrella has learned that in the weeks following the collapse of H&T, Robson informed at least one major pharmaceutical client it had “deregistered” a number of entities, including Hammond & Thackeray, and was adopting a more streamlined approach under the Healthy Thinking Group Pty Ltd.

On December 20, two days before Robson called in liquidators to wind up stricken H&T, he had formally renamed another of its subsidiaries, Aeffect, to the Healthy Thinking Group Pty Ltd and taken Aeffect’s ACN number.

In correspondence seen by Mumbrella, Robson omitted to say H&T was in the throes of being wound up, and told clients the business would now offer advertising, strategy planning and medical communication in Australia and Asia under the Healthy Thinking Group Pty Ltd banner. Media planning would be offered via Cole Media.

To that end, clients were told to expect invoices from the Healthy Thinking Group.

Until that point, Healthy Thinking Group had been a marketing umbrella brand formed in 2014, and not a trading entity in its own right. It had, however, previously registered Healthy Thinking Group (NSW) Pty Ltd with ASIC early in 2014.

Some creditors are livid at the way they were treated in the final months of 2017 as H&T lurched into financial crisis. They also believe that with total debts of $4.3m and just $19,000 in the bank, H&T must have been trading while insolvent.

Robson told Mumbrella such bare statistics have little relevance to the issue of insolvency and “has little to do with cash flow and liquidity”.

According to the Australian Securities & Investment Commission website: “There are various penalties and consequences of insolvent trading, including civil penalties, compensation proceedings and criminal charges.”

Tax issues

Cummins acknowledged in his liquidation report to creditors, and later told Mumbrella, there were “one or two” indicators that insolvent trading may have taken place, a view he said was based on a “preliminary assessment” and largely surrounded a number of payment arrangements agreed with the Australian Tax Office.

The ATO was H&T’s largest unsecured creditor with $473,000 outstanding. Cummins also noted the company had lost money for two consecutive years – in 2015 and 2016 – although it “appears” to have returned to profit in 2017.

The first payment plan was struck with the ATO April 2016, which led to H&T clearing its tax debts the following January.

But just a month later, in February 2017, a second payment plan was drawn up which H&T struggled to honour. According to Cummins, while instalments were lodged until August, it had failed to make payments on time since April before drying up altogether.

With H&T clearly struggling, a third payment plan was agreed in November and had been due to start in January.

Cummins said the tax issue was only an “indicator of insolvency around the beginning of September”, and stressed it was not proof. Other insolvency tests were passed, he said.

“I would need to conduct a cash flow test to definitively determine insolvency at that date,” he said. “It’s not a simple exercise and does take a bit of time and costs a bit of money.”

The bill would run up to $700,000 if a full forensic examination was carried out and legal proceedings launched, he told creditors, a sum which virtually precludes any further action unless it can be bankrolled by a litigation funder.

“I have a statutory obligation to conduct certain investigations and I have taken those as far as I can,” Cummins told Mumbrella. “If someone wants me to look further at other issues it might be that they have to pay.”

Name change

Asked about the change of name from Aeffect to HTG 48 hours before calling in liquidators, Cummins said a “preliminary look” had not unearthed anything suspicious.

“We were certainly aware of the change in name but we don’t think it goes anywhere,” he said. “We don’t know the reasons for it and nobody has been able to show me that the creditors of H&T have suffered as a result of that name change.

“That is my primary concern. Have the creditors of H&T been dealt with unfairly in the operation of the business and subsequent events? Unless it directly affects my creditors, saying a related entity has changed its name is largely irrelevant.”

Creditors are gathering documents which they believe will go a long way to supporting claims they were directly and adversely impacted by events and that Robson was effectively starting again under the Healthy Thinking Group.

It is understood they are due to present that information to Cummins next week.

Jeremy Knibbs, publisher at The Moose Republic, said: “Creditors believe there is enough solid evidence of him shifting assets in the form of moving business between companies, of H&T being insolvent a long time before December last year, and of him acting in a deceptive manner which breaches corporations law to pursue the matter.

“We are currently seeking to present this evidence to the liquidator. The whole thing …  whether legal or not, is morally bankrupt.”

However, Robson argued to Mumbrella that the use of the Healthy Thinking Group name has been “part of a long term strategy that had been in place for a number of years” and rejected any allegation it has acted against the interest of creditors.

Robson denies he has been part of any illegal “phoenix” activity.

“The Healthy Thinking Group was front and centre of our business offer and consisted of a number of businesses that were all independent but worked together to meet client’s needs,” he said. “These additional businesses were not required to be put into liquidation and have continued to service a number of clients. There is no evidence of phoenix activity.”

ASIC defines illegal phoenix activity as:

“Illegal (e.g. fraudulent) phoenix activity generally involves company directors deliberately trying to avoid paying the company’s creditors. For example, directors may have run a company responsibly but, despite this, the company cannot pay its debts. The directors transfer the company’s assets to another company with the same or similar name (and for no or little value) before handing the company over to an external administrator (registered liquidator). In this way, the directors seek to avoid paying any creditors including employees through the failed company’s liquidation.”

McCann deal falls through

Cummins had initially offered financial advice to H&T back in July 2016, again in September 2017, and met with directors further on December 11 and 19.

The latter two meetings came after H&T lost out to Ward6 in the battle to acquire McCann Health, a deal sources believe the agency had been banking on to stave off bankruptcy.

During those meetings, with H&T staring into the abyss, Robson and Northam “determined that a formal appointment would be probably be required”.

“McCann would have brought significant clients, revenue and profit into the business. It was going to be H&T’s life saver,” one source said. “But it fell over. They thought they were the front runner, and they may have been, but ultimately they failed to secure the deal that may have kept them afloat.”

Yet emails sent to creditors on December 13, after it lost out on McCann Health, still painted an optimistic picture, with Robson dismissing creditor suggestions of impending bankruptcy but admitting to a “cash flow issue”.

Despite losing a major pitch for Bayer around late November, he added that December had “kicked in nicely and is very busy with new client and new business activity”.

A week later BRI Ferrier had been called in to wind up the company.

Judy Passlow, joint publisher and editorial director at Medicine Today which is chasing almost $110,000, said invoices had not been paid since June and that increasingly anxious attempts to chase up the money were ignored.

“By November it was becoming pretty obvious we were going to be done,” Passlow told Mumbrella. “On December 13 we sent Steve Robson an email of demand telling him we were a small business, not a bank, and that we did not and could not offer interest free overdraft facilities.

“He told us ‘I note your concern about bankruptcy, however we have a cash flow issue’. Robson also said they were going to meet and make a plan on December 20 and that it would all be clear by then and they would meet with us that day to explain.

“The medical publishers as a group tried to press for that meeting on the 20th but they stopped responding and that was the day they changed the company registration from Aeffect to HTG and they called in liquidators on the 22nd.

“They must have known what they were going to do but kept us in the dark.”

Passlow: “They must have known”

Medicine Today’s joint publisher and managing director Tony Scott added: “When a company has several losses in a row and the bank balance is diminishing, and debts are owing to the bank, landlord, tax office, staff and everyone else, it’s a fair indication you are in a big trouble.

“H&T not only spent the 10% commission they were entitled to as an agent for placing ads in our publications, they spent the other 90% they collected from the pharmaceutical companies they represented. They used money that never belonged to them to prop up their business and continue to trade.”

Another creditor, who asked not to be named, told Mumbrella she had been chasing bills from September and was reassured it would be paid.

“Of course it never was. Afterwards, finance told me ‘sorry, we just couldn’t let you know what was going on’. They were happy to let me carry on working for them, knowing I wasn’t going to be paid.”

Another creditor, Tremain Media, which represents publications in the healthcare sector and is owed $36,000, said H&T was often late paying invoices with the issue escalating in the second half of last year.

Managing partner Jonathon Tremain predicted every publisher would be “wary” of dealing with the Healthy Thinking Group in future.

“This experience has started to wake us all up about other agencies we deal with. As soon as invoices are overdue alarm bells are going off,” he said. “We are hitting agencies up hard to pay their bills and are more than willing to say sorry we are not running your ads until you have paid.

“It is the publishers’ money they are holding and they are using that as short term interest-free loan.”

Robson, who declined to answer a series of specific questions relating to events, told Mumbrella that “indicators” that insolvent trading may have taken place are commonplace in liquidation reports and insisted the vast majority of creditors were upset for the company, not by its actions.

“There were around 150 creditors directly affected and only 3 or 4 have remained negative,” he said. “The voluntary administration of  H&T P/L was devastating for everyone involved. It came out of the blue, on the back of two months poor trading which went against many years of annual sales trends.

“The directors of H&T continually sought the advice of experts. It was in December 2018 when we were advised that we may not be in a position to continue to trade.

“It was very much unexpected and the independent liquidator’s report confirms this timing. We had managed costs and cash flow for some time, managing to turn the business from a loss to a profit in the most recent financial year with more than $1m reduced expenditure.”

Robson added the start of the 2018 financial year had started with uncertainty following the ill health of “one of the directors” and resignation a few weeks later of chief financial officer, Sean Patterson.

It resulted in “the remaining director” exploring “a large number of options for the business”.

“There were many meetings with a number of potential suitors and we had a number of in-depth discussions about opportunities,” he said. “This fact, plus cash injections into the business, is part of the substantial defence for solvency.

Robson: Problems came ‘out of the blue’

“There are no winners out of this situation with H&T. But thankfully most people have worked out a path forward. This is due to the fact that H&T traded successfully for more than 30 years and over that time the vast majority of creditors received a lot of ongoing business.

“Those few people still being negative about the liquidation need to be reminded of these facts.”

Financial cracks and expansion

Mumbrella understands that cracks began to appear in H&T’s financial health as early as 2013/14 as profits declined following a strong 2012. Robson and Northam were advised to prepare for leaner times but the warnings, according to sources, “fell on deaf ears”, with the business even expanding into Singapore in mid-2013.

In addition, new divisions began to emerge under the newly-launched marketing umbrella, the Healthy Thinking Group, of which H&T was its major trading entity.

Digital operation Pixelerate and Health Literacy Australia launched in 2014, communications outfit inCeptiv opened its doors in 2012 while strategy arm Optiv began operating in 2013.

Medical education business Aeffect meanwhile had been up and running since 2009 with Tonality Communications also an existing division.

“They needed to make cuts to stay in the black. They were told that for a year, but they were slow to make decisions,” one source said. “They thought decisions they were making, such as opening in Asia, while difficult in the short term, would reap longer term benefits. But essentially it was a small business and they should have stuck to their knitting.

“Steve and Tony were not so much glass half full people as glass overflowing. They genuinely believed that something positive would happen that would avoid the need to make tough decisions.”

In one creditor’s meeting in February, one director blamed changing market conditions for its struggles including pharmaceutical firms taking marketing in-house, heightened competition amid the shift from print to digital, and declining marketing opportunities following reductions in funding to the Pharmaceutical Benefits Scheme.

Founder dismayed

Thackeray: Staggered

But one of Hammond & Thackeray’s two founders, Peter Thackeray, who stepped down as chairman in 2011, expressed dismay at the collapse, telling Mumbrella he will be forever baffled at how the directors took such a “vibrant and exciting agency” to the wall.

“To see the agency I founded with the late Paul Hammond in 1988 go into liquidation is something I would never have envisaged,” he said. “To say I am deeply saddened is such an understatement.

“Whilst the market has changed and no doubt became more challenging, the extent of the demise of my old business in a relatively short period has staggered me.

“It would seem obvious that management was too slow to make corrective decisions. But, frankly, I will never really understand what went so terribly wrong.”

Another source described the notion that the market had changed in the past three years as “foolish”, arguing changes hit the sector 10 or even 15 years ago.

H&T’s financial losses in 2015 and 2016 came at a time of further turmoil within the group after it emerged that Thackeray and then Aeffect managing director Louis Reginato had taken legal action against Robson, Northam and their related entities for alleged breaches of shareholder agreements.

Thackeray, who had stepped down from H&T but remained a 20% shareholder in Aeffect, and Reginato, who also controlled 20%, claimed the other directors and fellow shareholders had transferred more than $1m from Aeffect’s bank accounts to the Healthy Thinking Group or H&T without their consent.

The action, launched in 2016, was settled by mediation in early 2017, the details of which have not been disclosed.

Robson declined to comment on the case.

Blackdot acquisition

Almost three months after the collapse of H&T, Blackdot emerged as a buyer for its assets, a deal which saw $17,000 handed to the liquidator for computers, TV screens and other office equipment.

A media release also spoke of a “unique multi-channel service offering in partnership with the Healthy Thinking Group”, which saw Blackdot take ownership of the HTG brand. In addition, nine staff – along with Steve Robson – became employees of the management consulting firm.

Robson refused to comment on its relationship with Blackdot beyond referring to the limited information contained in a media release issued last month.

But Blackdot executive director of strategy and operations, Peter Callaway, told Mumbrella that the HTG brand now falls under its control, is still operating and “has a website”.

Asked specifically what its relationship is with HTG and what role Robson has, Callaway said: “We own that brand now I guess. But we don’t plan to use it ad infinitum.

Callaway: “We own that brand now I guess”

“Steve is an employee of ours but he doesn’t run it (the Healthy Thinking Group). Our marketing people will take over that. He has a business development role in our broad health science practice.”

Robson confirmed his job title was now director, health sciences.

Callaway added: “HTG has positive value and negative value. Obviously, it is associated with a company that went into liquidation, but it also did good work for clients over the past few years and I think there is still a couple of clients who have on-going relationships with them.

“We’ll continue to assess the situation and if it doesn’t have value or detracts than we will shut it down. If it turns out over the coming months to have value then we’ll keep it.”

He stressed it was not about to establish a major advertising division.

Curiously, the home page of the HTG website mentioned by Callaway still boldly promotes the now defunct H&T, almost four months after it went to the wall.

It also features prominent logos of Aeffect and Optiv, brands which Callaway said Blackdot has “no intention” of using.

Asked if he was aware of HTG’s website content, Callaway said: “No, I didn’t. I will raise it with our marketing people because that is obviously not right and not what we want.”

Callaway also admitted he was aware of the ill-feeling towards Robson by some creditors, but added he still had many positive relationships in the healthcare sector, cultivated over many years.

“I would obviously prefer that (ill-feeling) didn’t exist. We don’t like the history of this. Legally we are not associated with it but emotionally you have to feel for suppliers,” he said. “It must have been an unpleasant experience on both sides.

“We did enough due diligence for the purposes of what we were doing.”

Callaway added that the HTG staff had been “integrated” into Blackdot.

He also emphasised Blackdot was not poised to launch a specific advertising business off the back of the HTG operation, explaining the staff bring the “knowledge and capability” to help Blackdot develop its multi-channel and marketing transformation.

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