Drag Ltd - The Full and True Story Behind ANDRA's Takeover
The full story behind Drag Racing Australia Group Limited, or Drag Ltd as it was more famously known, has never been revealed to ANDRA's members or the public. But JustDragRacing.com thought it time to delve beyond rumours and come up with as much fact as possible.
As the former commercial arm of Australian drag racing, Drag Ltd has been used as a handy political football by ANDRA over the past four years, and especially in recent times.
It has used Drag Ltd's alleged issues to fan the flames of racer discontent.
The common story spread about Drag Ltd has circulated mistrust towards Australia's 'big three' track promoters – Perth Motorplex, Sydney Dragway and Willowbank Raceway – and diverted attention away from Australian drag racing's very real and much bigger issues.
You only have to look back a few weeks to ANDRA's Motor Mail to members on 29 June 2015, an email signed by ANDRA Chairman Michael Fotheringham - ANDRA Motor Mail 29 June 2015.
In it Fotheringham labelled a then private concept from the big three containing their proposal for Group 1 rights management as Drag Ltd V2.
The tracks had been attempting (unsuccessfully) to engage with ANDRA management for more than 12 months about serious issues affecting the sport, including the health of Group 1.
In frustration, the tracks called a high-level meeting with ANDRA board members Fotheringham and Shayne Holmes, the South Queensland Division Director, in Ipswich on 6 June 2015 to table concerns and float ideas for solutions, along with also discussing the conduct of a number of key ANDRA representatives, including current CEO Malcolm Bulley.
Bulley, whose employment contract comes up for renewal this month (July), had not only put the big three tracks offside – ANDRA members and also its biggest customers – but also Adelaide promoter Rino D'Alfonso.
So discontented were the big three that soon after they notified Fotheringham in writing that they would no longer deal with Bulley, while Bulley himself acknowledged on Adelaide community radio recently that he and D'Alfonso do not talk.
As part of the 6 June meeting, the big three spoke of their vision for the future, floating an idea for Group 1 management rights and looking to improve on the business model used for Drag Ltd.
Part of that vision is the tracks' intent to partner with Group 1 racer groups in a new promotional and marketing company, include racer representation on the new, not-for-profit company's board, and form a new Racing Commission to oversee the series rules and regulations, with racers comprising 50 per cent of the commission board.
In branding the initiative Drag Ltd V2, Fotheringham was also considerate in 'reminding' racers ANDRA had recovered from its "own GFC after taking on the debts of Drag Ltd".
The war of words had begun and it was just too easy – it set off the usual (and predictable) complainers with social media lighting up like a Christmas Tree.
So what is the truth behind Drag Ltd?
Well, unless you have read the correspondence between ANDRA and its partners (yes, its partners) in Drag Ltd, and the subsequent administration reports, or spoken to those involved, then it is hard to determine.
What we do know is some ANDRA representatives, Fotheringham and Victorian Divisional Director Phil Parker, an ANDRA board member, have made public claims that Drag Ltd was trading insolvent.
The little read Sporting Scribe aggregate website reported on 3 July 2015 that Parker voiced to a racer forum; "Drag Limited was trading insolvent and it was decided that rather than declare bankruptcy ANDRA would buy out the other stakeholders and take the full brunt of the damage" and "In the wash-up ANDRA paid out $525,000."
Sporting Scribe's Mark Humphrey, an acquaintance of Parker, also wrote; "Not only did Drag Limited leave behind this enormous debt they along the way managed to sour relationships with some of Australia's most iconic motor brands" - Sporting Scribe - Drag Racing's Revolution Set To Rip The Industry Apart.
Is this the real truth or just a great story to continue the unrest and retain power?
The keyboard warriors were whipped into frenzy, with some irate racers calling for the heads of the revolutionary promoters while backing the administration that perpetuated the story.
Fotheringham, a corporate lawyer, followed with a second memo to members on 5 July 2015 which stated: "For the record ... Drag Limited was insolvent at the time of administration and ANDRA for the good of the sport took on the liabilities of Drag Ltd" - Drag News - ANDRA's Reply To The Tracks 5 July 2015.
Perhaps Fotheringham was being clever by writing "at the time of administration," but at a Sydney racer forum soon after he said enough to have former Drag Ltd director Pieter Versluis publicly challenge him.
Regardless of what happened in Sydney, the Facebook complainers again went off at Fotheringham's second missive, so combined with Parker's efforts it was job done!
A more balanced view is ascertained from official documents and correspondence, along with administrator reports to creditors, and they make for very interesting reading while providing opportunity for a more educated and balanced opinion.
From those documents, discussions with those involved at the time, and known public facts it can be determined:
1. Drag Ltd was equally owned by four organisations – Willowbank Raceway, Perth Motorplex, Sydney Dragway, and ANDRA.
2. After two-and-a-half years of losing money (not unusual for a start-up company), in its third full year of operating Drag Ltd actually operated at a profit (registering a pre-tax profit of almost $150,000) and was budgeted to make another profit in year four – so the company had turned the corner and was moving ahead, along with the Pro Series that it ran.
3. Drag Ltd was solvent with its directors voting unanimously to file a Solvency Statement generated by its Auditor in a board meeting on 1 June 2011 - Meeting Minutes.
4. In that same board meeting, its directors agreed to convert their respective loans (Sydney Dragway $74,000, Willowbank $76,000, Perth Motorplex $86,200, ANDRA $94,000) into company equity, thereby reducing Drag Ltd's debt.
5. On or around 1 July 2011, long serving ANDRA CEO Tony Thornton was unceremoniously sacked and was walked from ANDRA's head office at the end of the business day.
6. At an ANDRA board meeting on 21 August 2011, Thornton's former deputy Greg Humphries was appointed CEO "effective immediately." - ANDRA CEO Appointment.
7. At the same board meeting, ANDRA's board members voted to withdraw the Group 1 marketing and promotion rights from its partners in Drag Ltd "effective immediately."
8. In a letter to Drag Ltd directors dated 31 August 2011, Humphreys offered ANDRA's former partners a "commercial transaction" to avoid legal action and would buy its partners out for $100 each.
9. In the same letter, Humphreys acknowledged Drag Ltd's debt and wrote ANDRA would "meet all liabilities," later summarising "ANDRA agrees to meet all Drag Ltd current liabilities as stipulated in the balance sheet dated 21 August 2011 supplied by Drag Ltd on 25 August 2011."
10. Drag Ltd's track appointed directors – Gary Miocevich, Steve Bettes and Versluis – resigned with the buyout, their resignations official on 1 September 2011, while two weeks later ANDRA appointed its own replacements.
11. Drag Ltd was never insolvent before ANDRA's coup.
The details provide important understandings – ANDRA did not take on "the debts of Drag Ltd" nor did Drag Ltd "leave behind ... enormous debt."
ANDRA in fact bought the debt, associated costs and on-going commitments of Drag Ltd – that is clear and the big difference!
Why would a sporting organization funded by track sanction and racer membership fees buy a $525,823.54 debt for a paltry $300? And what responsible board with the interests of the sport at heart makes those sorts of business decisions?
The questions are BIG questions, and the first answer is that there never was a debt for $525,823.54. That fact will become apparent as this story unravels.
The second answer is that the Drag Ltd takeover was never about rescuing the sport from destruction. Instead, it was about power and control, and the management rights to commercial property.
Drag Ltd had shown investment in the Group 1 series could deliver commercially.
Humphreys wrote in his 31 August 2011 letter that the decision was about "ownership" stating "ANDRA will meet all Drag Ltd liabilities and in return would ... take complete OWNERSHIP of Drag Ltd, take complete OWNERSHIP of all intellectual property, and take complete OWNERSHIP of all licensing income" - ANDRA Letter - Page 2.
Questions could be raised on the legality of ANDRA's actions, but for the good of the sport the big three reluctantly accepted the buyout.
Remember it was also around this time that ANDRA switched from an association to company structure and in doing so promised greater communication and more transparency.
The decisions of switching to the company structure and Drag Ltd's buyout do not appear to have been wise. They haven't been good for the sport; the lack of transparency around Drag Ltd, the sport's continuing struggles and ANDRA's inability to return to the [true] black since the changeover demonstrate that.
ANDRA has reported a deficit in cash flow every year since the company structure took over in 2011, with the bottom line in 2013/2014 boosted only by the proceeds from the controversial sale of its head office.
Its accumulated cash flow since 2011 (taking out the office sale) is over $800,000 in the red, while its equity since incorporation has walked backwards to the tune of $712,000.
But ANDRA was bullish in the Drag Ltd takeover. It finally recognised the management rights to Group 1 were valuable if professionally run.
So why did it all come to a sudden and screeching halt?
Was it that suddenly ANDRA had to stump up the funds to pay for the 2011 Fuchs Nationals TV coverage without the assistance of its former Drag Ltd partners, which it found itself required to do?
ANDRA spent $85,872 fulfilling the Nationals TV commitment and other Drag Ltd costs in the lead up to the Deed of Company Arrangement being enacted on 25 February 2012, the the company was placed into administration by its new directors.
None of those costs were incurred under the oversight of the previous directors; they were all acquired after the ANDRA buyout. In return ANDRA also received income from its continuing racer and track TV levies to cover some of the outlay, so they could not be the reason...
Anyone with the slightest idea on how corporate business operates understands that for a company to be insolvent as claimed by Fotheringham and Parker, it cannot pay its bills when they fall due.
Without the financial guarantees, support and investment of Drag Ltd's former partners ANDRA was, to some extent, financially exposed.
Terry Jongen, ANDRA board member and a known opponent of ANDRA's original role in Drag Ltd, was one of those appointed as a Drag Ltd director in the new ANDRA era.
West Australian Jongen is an interesting character. In his WA Divisional Director's role, Jongen joined Bulley in selling the company structure process to ANDRA members, as a board member he was involved in Thornton's dismissal, and was amongst those recommending Bulley for the CEO's position.
As part of the new director appointments ANDRA provided formal indemnity for the company.
In a supplementary report to creditors by the appointed administrators on 7 May 2012, BRI Ferrier reported it sought legal advice and was informed ANDRA might be held liable to "in the order of $210,000 to $270,000," due to the indemnity.
Trading insolvent is illegal, and the directors of any company doing so are subject to legal action by administrators, who can pursue for losses suffered when incurring the debt.
But despite stating in its 22 March 2012 Report to Creditors; "Upon completion of my review of the solvency of the company, I proceeded to formulate a potential claim" and "the prospect of a claim for insolvent trading resulting in a recovery is likely," BRI Ferrier did not pursue Drag Ltd's former directors.
With a little further reading it is easy to understand why...
In a Drag Ltd board meeting held by teleconference on 1 June 2011, Drag Ltd's then CEO Paul Casos advised the board that Neil Harding of Harding Martin Chartered Accountants had contacted him regarding audit advice and the company's debt situation.
Harding was satisfied with Drag Ltd's financial position and advised the board to complete its Solvency Statement, with the motion moved and unanimously passed. This meant Drag Ltd's directors guaranteed the funds.
And the assurances of Drag Ltd's solvency included formal motions from all major tracks to recapitalise the company as necessary and also included a personal guarantee from Miocevich if required. They had all committed to making Drag Ltd, and the sport, succeed.
BRI Ferrier subsequently noted in its 7 May 2012 report; "any claim made against [the former directors] for insolvent trading will be vigorously defended on the basis that they would have contributed funding required."
With that, the former directors were never pursued – and rightly so. Before ANDRA's full takeover, Drag Ltd was never insolvent.
It is worth noting on 4 May 2012 BRI Ferrier lists Drag Ltd as having had receipts of approximately $135,000 with almost $95,000 in cash, while it was chasing a further $60,000 from debtors.
The big question is did ANDRA actually pay out $525,823.54 as claimed by ANDRA director Parker and others?
In a letter to the appointed administrator, Des Munro of BRI Ferrier on 23 April 2012, Humphreys discusses the proposal for a "Deed of Company Arrangement" and offers additional funds "limited to the amount of $200,000."
Humphreys' offer proposed; "creditors will accept their payment from the Deed Fund in full and final satisfaction against DRAG."
Apparently Humphreys had been informed of the potential ahead of BRI Ferrier's May creditors report and he acted to limit damage – if there ever really was to be any.
Ironically, the following day leading motorsport website Speedcafe reported Humphreys had unexpectedly stood down from his position citing health reasons - Speedcafe - ANDRA CEO Greg Humphreys Stands Down.
In walked interim CEO Rob Sharp, while just a weeks later Bulley was announced Humphreys' fulltime replacement. Sharp oversaw the final details of the administration.
But back to the often-kicked around $525,823.54...
Firstly, Humphries acknowledged in his 31 August 2011 letter that $314,200 of this was loan accounts from the four partners, but the directors had already previously voted to turn that into equity. Drag Ltd was not liable for it.
The bulk of the remaining debt was owed to Network Ten, but there was a dispute over $231,000 which centred on contracted deliverables, with Drag Ltd asserting they were never provided so it was not liable for the amount at all.
Ongoing negotiations were taking place with Network Ten before the ANDRA takeover but Drag Ltd management was adamant the amount was not payable and it was standing firm.
It was noted in correspondence from BRI Ferrier's principal Alan Scott on 9 November 2011 that following ANDRA's takeover, Humphreys offered Network Ten $200,000 to settle the dispute, but the offer was rejected.
But, and this is a very big BUT, following BRI Ferrier's appointment as administrators Network Ten are reported to have not responded to any of the administration correspondence that was issued.
The network did not file a claim for the disputed account, so therefore it was never paid.
Three creditors did file claims; Gearhouse Broadcast Pty Ltd, the TV production house; Harding Martin Charted Accountants, Drag Ltd's auditors prior to the takeover, and; Protrend Nominees Pty Ltd, aka the Perth Motorplex.
In a Circular to Creditors dated 26 July 2013, Scott wrote that control of Drag Ltd returned to ANDRA on 30 May 2012 "upon the execution of the Deed of Company Arrangement" and that a "first and final dividend to all creditors was paid on 28 June 2012."
The final Summary of Receipts and Payments then makes for even more interesting reading.
It shows that Drag Ltd had $94,549.12 in cash at the bank at the time of takeover, while the administrators received another $100,372.79 from debtors, including a payment of $38,263 from Willowbank Raceway. Drag Ltd had $194,921.91 to pay towards its debts.
The Summary of Receipts and Payments also states the "First and Final Dividend" paid out was $117,290.32. Correspondence from the former administration states creditors were paid out in full, at 100 cents in the dollar.
A simple mathematics equation of subtracting the paid out sum from the available funds produces a surplus, confirming Drag Ltd's solvency prior to its takeover.
Unfortunately company administration is an extremely expensive process, with BRI Ferrier's charges and the associated costs with the whole administration procedure totalling a whopping $102,876.26.
But what of ANDRA's "own GFC" as Fotheringham reinforced to ANDRA members, and of ANDRA having to take "the full brunt of the damage rather than declare bankruptcy" as Parker is reported to have voiced at the Victorian racer forum?
The truth is ANDRA's contribution to balance the books after this unnecessary activity was just $16,075.99 – that is $509,747.55 less than the much-hyped $525,000 and hardly a "GFC" as claimed.
EDITORIAL COMMENT - Questions Need To Be Asked Of ANDRA Management
- Gerald McDornan