Soundwave Festival Restructured: Poor management led to losses

Returning in January with new dates, Soundwave Festival boss AJ Maddah hopes to repay millions to angry production suppliers, venues and bands. The recent collapse of the previous operating company saw 186 creditors unpaid with debts of $25.8 million.

Soundwave was a profitable business for Maddah and his partner Joanna Ward, grossing $62 million in 2013. They took the profits and invested in a loss making format called Harvest Festival which ran twice, and then a $5 million stake in Big Day Out – which failed almost immediately.

They purchased Stage Systems, formerly known as Billy Hyde Stage Systems and then saw a downturn in rentals of backline equipment because rival promoters took their business elsewhere. Stage Systems is now to be sold for just $600,000, a fraction of what they paid for it several years ago.

But the bad investments pale against bad business management revealed in administrator Deloitte’s report to creditors. Deloitte identify debt to the Australian Tax Office for unpaid Pay As You Go, and Office of State Revenue charges totaling over $6 million, caused by years of incorrect recording of artist fees as wages. These should be coded as contractor payments and do not normally attract PAYG or Payroll tax.

While Deloitte may be able to reverse some of those liabilities, they will first pursue some creditors for ‘unfair preferential payments’ made recently which amount to $557,000. Ominously some of this was paid to suppliers that made legal threats, and Deloitte can in turn take legal action to recover these funds despite the legitimate debt. This doubles the pain for those suppliers, part paid by Maddah and then sued by Deloitte.

Soundwave is now struggling to stage the 2016 festival, with burned suppliers likely to require pre payment for supply of services. The report shows a contributing factor in the failure of the 2015 festival was ‘higher costs due to the (tighter) availability of rental supplies and inability to negotiate discounts previously received’. In other words, suppliers were charging more as they faced more risk.

Deposits for the 2016 festival have, in part, come from the box office, says Deloitte. They identify $1.9 million in ticket sales prior to their appointment, of which ‘80% has been released to the Director (Maddah) for deposits’. It is unclear how box office funds held in trust can be released prior to an event. Ticketing company Eventopia have not replied to CX, nor have other ticketing companies approached for details of how they protect ticket funds prior to events.

Maddah proposes to contribute to a Deed of Company Arrangement using some proceeds from the 2016 Festival plus the sale of Stage Systems. At best creditors could receive 25 cents in the dollar. At worst they will get nothing if the firm is liquidated. Deloitte will earn at least $200,000.

First published in CX Magazine (December, 2015)