FLASHBACK: Big Dog 5 was to be the start of a new relationship with Mack, after Jon Kelly has ordered 40 to be delivered in stages in 2014 and 2015.
FLASHBACK: Big Dog 5 was to be the start of a new relationship with Mack, after Jon Kelly has ordered 40 to be delivered in stages in 2014 and 2015. Contributed

PART 2: HHA’s ‘culture of indulgence’ as debts piled up

  • A lax attitude to maintenance
  • More than $77 million in debt
  • Out of 58 prime movers only 7 were in operation
  • HHA may have traded while insolvent

UNTANGLING the web of Heavy Haulage Australia wasn't easy for Administrators Ferrier Hodgson.

One year on and one public examination later they still don't have full records for some of the businesses associated with well-known TV identity Jon Kelly.

A report that came out shortly after the business went into receivership revealed that Kelly had failed to provide books and records for JK Controlled Entities.

What's a JK Controlled Entity you might ask?

This photo from the report might help


Image from creditors report into HHA.
Image from creditors report into HHA. Carly Morrissey

Jon and his wife Joanne had a few businesses

  • JFK Project Solutions Pty Ltd,
  • Custom Truck Australia,
  • Roadhammer Investments Pty Ltd,
  • HHA Air-Marine Pty Ltd,
  • HHA Oil and Gas Services Pty Ltd,
  • Texas T Holdings Pty Ltd and
  • The HHA Group.

In November 2014 McAleese purchased a 50% shareholding in HHA from the Roadhammer business for $3 million.

Listen to Jon talking about the deal here.

The terms of the agreement saw that $3 million injected back into HHA and a further $4 million from McAleese Finance.

At the time the business had an ATO debt of $5 million and the rest of the money was to be used to stabilise the business.

Before that happened HHA had consolidated its individual businesses into one operating entity (HHA Group) except for JFK Project Solutions, Custom Truck Australia and Roadhammer Investments - which became JK controlled entities.

Those remaining businesses it has been revealed managed to secure a cross collateral security debt to Westpac and GE Commercial after the McAleese deal.

What happened?

Looking into the books administrators found HHA owed $77.6 million.

Administrators talk of the debts back in 2015.

HHA Directors (McAleese) decided to place the HHA businesses into administration on June 28, 2015 (all except for Texas T) after McAleese Finance withdrew its financial support.

Then GE Commercial appointed Ferrier Hodgson as administrators of Texas T on June 29, and the rest of the businesses owned by Kelly on July 1.

On appointment administrators assumed control of the group's operations including the sites in Brisbane, Toowoomba, Port Hedland, Perth and Darwin.

It was then they found that of 58 of the Group's prime movers, only seven were in operation.

The main reasons the business failed according to administrators were:

  • The downturn in the resources sector resulting in a sharp decrease in revenue
  • Underutilisation of fleet assets, especially assets associated with the Oil and Gas sector, which experienced a sharp decline in revenues from December 2014
  • A high fixed cost base, and specifically its yearly hire purchase repayments to various financiers, of $14.1 million
  • A historical culture of indulgence and lack of financial discipline
  • A lax attitude towards the maintenance of adequate books and records, especially prior to November 2014 (before McAleese purchased a 50% share)
  • Inadequate job costing resulting in an inability to accurately reflect the costs of a job or determine whether it was profitable
  • Poor recent trading (for the eight month period ended May 31, 2015, HHA reported losses of $10.1m)
  • A large level of committed but unfunded capital expenditure related to the procurement of new prime movers or trailers ($13m).
  • A number of legal disputes with various parties typically resulting in adverse outcomes to HHA.
  • The grounding of the Queensland-based fleet in May 2015 by the QLD Department of Transport and Main Roads due to permit breaches.
  • An inability to rapidly execute a restructure of the business.

Back in 2014 Jon Kelly announced a landmark deal where he was to buy 40 new Mack trucks.


Big Rigs page 1, edition 1 2014.
Big Rigs page 1, edition 1 2014. Carly Morrissey

However administrators report the business did not get enough revenue to support the spend.

They also said the business had ordered 55 fleet assets costing $13m but were unable to pay for the goods on completion.

They had ordered 16 Western Stars, eight Drake Trailers, 18 O'Phee trailers, one Isuzu, four Volvos, seven Macks and one Peterbilt.

The report went onto say that while HHA had committed to buying the equipment they had not secured the finance to purchase the assets and didn't have enough cash to pay for them outright.

In September Jon put his Red Peterbilt up for sale.

HHA was also placed on stop credit by a number of suppliers and received a number of legal letters demanding payment in the six months before being placed in administration.

  • HHA reported losses of $10.1m for the eight month period ended 31 May 2015 ($7.5 from July 14 to 31 May 2015).

The report said HHA's gross margin deteriorated from 36% in H1 FY15 to 5% in May 2015 (YTD 29%). The decrease was driven by:

  • Poor job costing;
  • A significant increase in the use of subcontractors (May 2015 saw an increase of 110% on April 2015);
  • A decrease in revenue not matched with a decrease in costs
  • Increased market competition as the market got smaller.

Basically HHA had a high fixed cost base and efforts to reduce the costs did not match the rate of decline in revenue.

Administrators also say McAleese Finance ended up injecting a total of $13.4m into the business to meet operational costs.

The most astonishing line in the report was the revelation that the administrators thought HHA might have traded while insolvent for a period of time before they stepped in.

After they took over administrators were concerned that up to 15 assets may have been sold in the six months prior to their appointment for amounts that may have been below market value, or the proceeds of which may not have gone to the Group entities which owned them.

They were also concerned that the asset sales were not approved by one of HHA's Directors and that led to a public examination this year.  Read the story about the truck deal here.

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