For two years, the people of of Westborough, Massachusetts, tried to find out who owned their town cinema. They searched high and low. Alas, not even the tenant, Interstate Theater Inc, knew the owner.
So the town put its one cinema complex up for sale. And it found a buyer from California. Suddenly however, like a muddy hand protruding from the grave, the owner materialised. It was none other than Babcock & Brown, the Aussie financial engineering firm. Michael West reports on the bizarre unravelling of a fleeting corporate powerhouse.
Readers who are au fait with the antics of Babcock & Brown, may recall that the madcap financiers, besides trying to turn a dollar from any asset which Other Peoples’ Money (OPM) could buy, had once burst onto the music rights scene.
They even owned the rights to the Right Said Fred classic, I’m Too Sexy For My Shirt.
I’m too sexy for my shirt
Too sexy for my shirt
So sexy it hurts
And I’m too sexy for Milan
Too sexy for Milan
New York, and Japan
I’m too sexy for my shirt
After a fleeting, albeit dazzling, life on the sharemarket, Babcock & Brown became too sexy for the ASX and soon sank in a swamp of leverage during the Global Financial Crisis in 2008, its offices in Milan, New York and Japan dematerialising as well.
Indeed, the insolvency crew from Deloittes is still Deloittering over the carcass to this day. They must be adoring this gig, gorging on fees like les amies in La Grande Bouffe, all catered for by the folly of Australian superannuation managers who were caught in Babcock when it capsized.
For there were many assets, entities, corporate concoctions. There still are. But why would Babcock buy a movie theatre complex and then hide, apparently pretending they didn’t own it?
Typical of the firm’s penchant for paper shuffling, this cinema deal was no straight ownershippy thing. As it turns out, it was owned by a Babcock subsidiary via an SPE, a Special Purpose Entity, perhaps via another Babcock concoction called Babcock & Brown Administrative Services Inc.
Although, even a thorough search of the Worcester County Register of Deeds by a special investigator – whose work has fallen into the warm embrace of the forensics team here at Michael West Media (it’s a compact team) – had trouble getting to the bottom of it.
The investigator, Richard Rand, turned up a tax haven trail and a series of documents which showed Babcock had been happy to take payments from the Westborough cinemas or 11 years before suddenly stopping doing business.
“What’s interesting about these emails from the Town of Westborough is that they have been in contact with B & B executives who, in the emails, claim no connection to this theatre and no knowledge of who owns the theatre other than a company named “MIGNONETTE LLC” – registered in the British Virgin Islands,” Rand told us.
“… they claim to not know who the officials are in this company or any names of contacts or any business address. That cannot be true. Imagine doing a $US9.4 million dollar deal with someone structuring a company in two US States, borrowing $9.4 million using your company’s address and name all over these transactions and you know nothing about them.
“Not to mention in these emails they stopped doing business in 2008, so they took money for 11 years then stopped doing business … why?
Perhaps the liquidators from Deloitte hum the Beach Boys’ anthem Kokomo with a wry smile when they hit that fee clock because Babcock also owned the rights to this song:
Aruba, Jamaica, oh I want to take ya
Bermuda, Bahama, come on pretty mama
Key Largo, Montego, baby why don’t we go, Jamaica
Off the Florida Keys, there’s a place called Kokomo
That’s where you want to go to get away from it all
Bodies in the sand, tropical drink melting in your hand
We’ll be falling in love to the rhythm of a steel drum band
Down in Kokomo
Then again, Jamaica is not even a tax haven and the British Virgin Islands don’t rate a mention either. Steve Miller’s Go On Take the Money and Run would have been more apposite.
The most plausible explanation for Babcock’s fleeing this cinema is debt. The firm wanted to distance itself from the debt attached to the asset. Yet, this small saga, relatively small that is, is a parable for the mess of corporate collapses, for failed ambition and greed. The cost to stakeholders from creditors and shareholders in Australia – to the townsfolk of Westborough, Massachussetts – persists to this day.
All the bankers and the lawyers, the accountants and consultants who signed off on these deals, have moved to the next deal. As have the brokers and the PRs who sold them. Not one person associated with the massive collapse of Babcock & Brown, Allco Finance or Rubicon Asset Management has been prosecuted.
Every year, the Tax Office issues its Corporate Tax Transparency Report which identifies the tax position of Australia’s top companies. Every year, Babcock & Brown International bobs up. This chestnut has recorded total income of $2.22 billion over the four years of data, with zero taxable income and zero tax, naturally. It is interesting that from 2013 to 2017, the records show revenue of $680 million, $387 million, $654 million and $499 million; no doubt evidence of the lumpy nature of flogging assets.
But besides Deloitte and its fees, where are these billions going? They are going to pay back creditors. Banks are the big ones but the question is, what Babcock former executives, family members and mates are also creditors, having put in a claim to be owed something as the thing was sinking? You can bet that only the beneficiaries are watching.
And where are they now, the former executives? Many are in businesses of a less high-profile nature. This is fitting, and indeed fits with another of Babcock’s music rights, the rights to Madonna’s Holiday:
You can turn this world around
And bring back all of those happy days
Put your troubles down
It’s time to celebrate
Let love shine
And we will find
A way to come together, we can make things better
We need a holiday
Richard Rand, the investigator in the theatre debacle, points to the decision of Justice Foster who presided in the Australian Federal court over the case of shareholders alleging they were defrauded by Babcock – by their financial statements that is, alleging to be a very profitable business right up until August 2008.
“When in November 2007,” says Rand, “They were trying to distance themselves from the (Westborough theatre) debt … (that) decision was published in September 2019 and B & B’s defence was that they were blindsided by the Global Financial Crisis when in fact this theatre (suggests) they knew before November 2007”.
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