Insolvent since 2018: Melbourne Rebels’ rescue plan hinges on legal fight

Administrators for the Melbourne Rebels have green lit a rescue deal put forward by the club’s directors that paves the way for the directors to sue Rugby Australia if the governing body refuses to hand back the team’s licence.

If creditors vote against the proposal, the Rebels directors could face personal liability of $16.8 million for the club’s extensive losses, amid revelations the team had been trading insolvent from at least 2018.

Filipo Daugunu of the Rebels celebrates a try during the round two Super Rugby Pacific match.

The deal is dependent on Rugby Australia handing back the licence as well as the Australian Taxation Office releasing the directors from their personal liability over the club’s $11.5 million in tax debts.

The proposal was put forward by the Melbourne Rebels directors and the group behind the recently announced private equity-backed consortium led by business heavyweight Leigh Clifford.

The consortium announced in April that it was closing in on raising between $20 million and $30 million from private equity to invest in the Rebels over a number of years.

Administrators agreed to accept the proposal on Thursday given its promises are a return of 100 cents in the dollar to employees, and for unsecured creditors to receive between 15 and 30 cents in the dollar.

The excluded creditors are the directors, their entities – owed collectively $6 million – and the tax office.

The club owes creditors $23 million.

The administrator support for the deal was outlined in an administration report released late Wednesday night. It was deemed the proposal, known as a deed of company arrangement, would provide creditors with a better and quicker return than what they would receive if the company entered liquidation.

Creditors will vote at the next meeting on May 3 on whether to support the deal or wind up the company.

Will the Melbourne Rebels survive in Super Rugby?

Rugby Australia had previously outlined its support for the club to enter liquidation. RA has been contacted for comment.

The plan to salvage the club also includes the Rebels directors funding litigation against Rugby Australia to regain the club’s licence which it was stripped of following the club’s entry into administration.

Potential $16.8 million cost for insolvency claim

The Rebels’ eight directors could be on the hook for $16.8 million if the club enters liquidation after the report, authored by PwC administrator Stephen Longley, found that the Rebels had been insolvent since 2018.

“I consider it reasonable considering the date of insolvency is over five years prior to my appointment to assume that the majority, if not all, of the debt that remains unpaid would have been incurred after the date of insolvency. Accordingly, an insolvent trading claim against the directors could exceed $16.8m,” Longley wrote.

A fan hugs the Melbourne Rebels mascot.

He also said in his report that his “preliminary investigations have not identified any offences committed by the directors other than failing to prevent the company from incurring debts whilst insolvent”.

The directors allege RA and its directors deliberately withheld the full revenue share for sponsorship and broadcast deals.

Longley said he needed further time to assess the merit of all the directors’ claims against RA, but said he had found that there was no participation agreement for the Rebels to field a team for the 2024 or 2025 seasons after its agreement expired in December last year.

“RA has informed me that its position is that the Company did not comply with all its obligations under the Participation Deed and accordingly the Participation Deed was not extended,” Longley wrote.

However, he noted the directors have argued they could have their licence reinstated as they lost it under “unconscionable circumstances”.

The administrator included in the report a table that showed that even if the Rebels had received the amount from RA the directors claim it was owed in 2021, 2022 and 2023, the company would have still been trading while insolvent.

Rebels director Georgia Widdup said Rugby Australia had refused to discuss their proposal, despite invitations, and that their legal action against the peak body was “well advanced”.

“As the administrator’s report makes clear, the Melbourne Rebels were heavily reliant on distributions from Rugby Australia. Unfortunately, RA made a range of representations to us over many years regarding funding that it would provide. We relied on these representations, but RA did not honour these commitments,” Widdup said.

RA chairman Daniel Herbert told the Inside Line podcast (owned by Nine, which also owns this masthead) on Tuesday they were waiting to receive the report before any decision would be made.

“We have very little communication with the former directors. We keep hearing things here and there through the press, but when we have had meetings there hasn’t been a lot of detail shared. We will sit and wait for that report,” Herbert said.

He added the sport was considering other possibilities for the Super Rugby competition if the Rebels do not return after this season.

According to the report, in December 2021, the Rebels provided RA with its financial accounts and working capital. Directors also expected new funding to be provided by RA following a meeting in October last year.

“[The Rebels were] heavily reliant on RA to provide financial contributions to generate sufficient funds to keep trading,” Longley wrote in the report.

Between the 2021-23 financial years, funding from RA accounted for 60 per cent, 63 per cent, and 52 per cent of the club’s income, respectively.

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