Advice for struggling businesses from Lisa Ho’s administrator

Michael Bailey Deputy editor

Advice for struggling businesses from Lisa Ho’s administrator

Published 07 February 2014 12:24, Updated 08 February 2014 03:44

Gray’s Online, which sold Lisa Ho’s last 32 dresses, is also about to sell the fallen fashion empire’s rolls of vintage fabric – including rayon, which is no longer manufactured. Tamara Dean

With the last vestiges of Lisa Ho’s fashion empire about to be sold off – rolls of vintage fabric will appear on Gray’s Online later this month – her administrator has an action plan for other businesses on the brink.

The descent of Lisa Ho Retail and Lisa Ho Designs into voluntary administration last May, owing about $10 million to employees and creditors, is an all-too-common case of an entrepreneur being too slow to admit that things need to change, says Todd Gammel, a business recovery and insolvency partner at HLB Mann Judd.

“There was a misappropriation of funds and some stock over-ordering which meant she essentially missed the [2012] season – and that’s your working capital for the next season,” Gammel says.

“That’s what dragged it away, and what shattered her confidence in management. They were removed or left – which is fine in itself, but the mistake was that nobody was brought in straight away to develop a plan to rectify things.”

Known as fiercely independent, Gammel says Ho – like any entrepreneur – really needed “someone within the business that was trusted enough to be able to say ‘no, and here are the reasons why’. It’s surprisingly easy to get insulated and out-of-touch within your own business.”

The failure to sell the Lisa Ho Retail and Lisa Ho Designs businesses as going concerns was another symptom of the brand “being so strongly aligned with one person”, Gammel says.

“That’s why she gave the highest bid, by a long way, to buy her intellectual property back. The value is hard to realise for a pure third party unless there’s support from the individual as well.”

Bring your financiers inside the tent

By 2012, Lisa Ho was selling off her own assets to repay debts however there was no broader restructuring plan.

Gammel says cash-strapped businesses need to develop this, as well as a financial forecast – preferably through a third-party – and bring their financiers in on it straight away.

“If you have a logical plan that makes sense, that’s detailed enough and has an adequate time frame, they’ll at least give you a hearing if not further support. Otherwise you’re fighting a lone battle, and they can cut you off at the legs at any stage.”

Treat the ATO like any other financier

The Australian Tax Office – one of Lisa Ho’s unsecured creditors after an agreed payment plan was not adhered to – should be managed like it is any other financier, Gammel says.

“Once you’re on a payment plan, the ATO is effectively your financier, and the anecdotal evidence we have is that they’re more ready than ever to push you over if you don’t comply.”

The ATO once typically allowed businesses to miss three payment deadlines before taking wind-up action, but that has now been reduced to two ‘strikes’, Gammel observes.

He predicts the ATO will be a more common trigger than banks in the spate of insolvencies he expects in the second half of 2014.

“If a business is facing operating difficulties at the beginning of the year, chances are this situation will continue in the difficult trading environment expected in 2014,” he says.

“For business owners in this position, the best course of action is to acknowledge the difficult trading environment and seek help. Businesses that take a proactive approach are more likely to be saved.”