Training firm’s $20m bid which left staff out to dry
A MAROOCHYDORE-based national training college with $2.2 million in the bank opted not to pay out staff when its admin company collapsed, in a bid to secure $20 million more in government funding, a court heard.
Evidence tendered at the Federal Court public examination of SC Admin Pty Ltd by liquidator Worrells revealed SmartCity Vocational College had $2.2 million cash at bank when its admin firm SC Admin Pty Ltd folded in December, 2016, leaving more than 300 staff jobless.
SC Admin was wound up with debts of $2.6 million to staff for annual leave and entitlements, but company directors and shareholders opted to keep the funds in the college, and through a new service company, try to "teach-out" their students and claim an extra $20 million in Federal Government VET-FEE funding.
Barrister Craig Coulsen, acting for Worrells and instructed by Mooloolaba-based firm Sajen Legal, put to former SC Admin director and Coast businessman James 'Jim' Spong that SmartCity had either been insolvent, or simply refused to pay the $2.2 million to SC Admin for staff entitlements.
Mr Spong rejected the claim and said their main priority had been the students.
"We had 3000 students and they were our number one priority, and so the way forward that we thought would be best for the students would be to do a teach-out and to keep as much of the college functioning," Mr Spong said.
"Because if we had have done that (paid the money to SC Admin) then we would have had to shut the whole thing down.
"SmartCity couldn't do a teach-out for our students and keep the campus open and pay all the staff. So there was a decision to be made.
"The decision was company policy and that is to take care of our students.
"We spoke to staff members and they were in agreement that they wanted the students to be looked after as paramount."
SmartCity was paid $1.12 million in 2013 under the Federal Government's VET FEE-HELP student loan payments scheme.
The college's income shot up dramatically in 2014 and 2015, when SmartCity earnt almost $80 million.
In evidence given at the public examination, which wrapped up in June, 2019, the court heard the company was earning $3.3 million a month at one stage through the scheme, having smashed initial enrolment projections
Former SC Admin director Jim Spong and his wife, Lynette, had worked for Careers Australia selling VET-FEE courses and "made Careers very wealthy" before Mr Spong decided to start up the SmartCity company.
It began with eight staff on board after Mr Spong bought the company in November, 2013.
At its peak, SC Admin turned over $56 million in a year, and at its highest had a payroll of $900,000 a month for more than 300 staff.
Another service company, SC Operations Pty Ltd, was registered by Mr Spong on November 3, 2016, prior to SC Admin's collapse.
SC Admin's former chief financial officer told the court that when VET-FEE course fees plunged from about $10,000-$12,000 per student to less than $500, a new entity had been established with the goal of winding down SC Admin, which still had $20 million worth of Federal Government payments due.
He said the effect of the restructure had been to shed the costs of premises, rent and staff.
"Well there would be no point ditching it (SC Admin) if you're going to pay them (creditors), because the whole purpose of setting up a new entity is to unload liability," the former CFO told the court.
The court heard the new admin entity had reduced overheads from $3 million a month to $900,000.
Jim Spong said the purpose of the restructure had been to take into account where the future of the industry was going, after being told as a company they had to produce more non VET-FEE income.
"I do recall a conversation (with former SmartCity Vocational College CEO Glenn Spong) where we were talking about the value of the teach-out, which was estimated to be about $20 million, and so we were very confident in being able to take care of any obligations to our staff going forward," Mr Spong said.
Options discussed included paying out what was available and wind down, or teach-out.
"We would keep about 50 staff, work out some premises and do a teach-out which was worth about $20 million, and from that we concluded we would be able to pay all of our creditors (both SC Admin and SmartCity Vocational College creditors)," Mr Spong said.
"We would have done (paid SC Admin enough to pay creditors) if we would have been able to go forward with the - what we wanted to do, yes."
Mr Spong said he was aware the Federal Government would pay staff entitlements and first and foremost they wanted to take care of students.
Under privilege he said his son, SmartCity CEO Glenn, "would have had a significant role in helping restructure the company to make it viable in the future".
SC Admin's former legal officer gave evidence he'd clashed with Glenn Spong about the direction the company was headed.
He'd also held concerns about the influence of PricewaterhouseCoopers consultants who he felt were trying to change the company's structure and creating unnecessary work while rendering "enormous" bills.
Former SmartCity CEO Glenn Spong, appearing from overseas, told the court the consequences of the restructure weren't his concern.
"It wasn't my primary concern, as in, as the CEO of SmartCity Vocational College. That was my primary concern," he said.
He said it was correct to say they'd tried to save SmartCity by cutting SC Admin adrift, and he'd known there were staff entitlements to pay.
He said he understood SmartCity Vocational College was up to date on entitlements payments to SC Admin.
"In trying to summarise it, I guess the summary that I would have concluded that we were struggling to - in terms of scenarios was do we look after the - the students that we've got an obligation, or do we look after the staff, and it was a very difficult decision, but in - to, I guess, confirm what you said, we did feel that there was some protections for staff, whereas the displaced students would, we believed, have a greater impact on the lives of more and people that we felt we had a greater responsibility for and it has been a very difficult decision, yes," Mr Spong said.
When asked by Mr Coulsen whether he agreed that the consequence was that a very large amount of money remained at cash at bank in SmartCity Vocational College, which SmartCity Vocational College later used in its trading privilege, Mr Spong said:
"Yes, as the CEO of SmartCity Vocational College, my goal was to secure the means to be able to continue to train the students, and that money was used to subsequently train students for another three months."