Valhalla Brewing To Be Liquidated; Multiple Indie Brewers Counting The Cost

Valhalla Brewing and parent company Lotus Beer Co are set to be liquidated following a second meeting of creditors yesterday.

In mid-July, the Geelong-based beer business entered voluntary administration and its subsequent collapse puts a spotlight on a number of issues within the craft beer industry, including equity crowdfunding, beer distribution, and the tight cashflow conditions within which breweries are operating. It also leaves Lotus’ creditors, many of whom are small, independent breweries, tens of thousands out of pocket.

The decision to wind up the business was recommended by the administrators, Worrells. They said in a report to creditors that they had not received a Deed of Company Arrangement (DOCA) from founder and director Scott Hunt nor from any other source.

“As outlined further in this report the Company is clearly insolvent, and therefore we cannot recommend that control of the Company revert to the director,” the report read.

“Accordingly the only option we can recommend for the future of the Company is for it to be wound up.”

In total, nearly a million dollars was owed to unsecured creditors when Lotus called in administrators, while the report shows a further $440,000 was owed to secured creditors, including finance companies who had issued loans for the brewery equipment.

Ingredients and equipment suppliers, who often bear the brunt of brewery administrations, were among the unsecured creditors. The commercial real estate group, Hamilton Group, were owed close to $100,000, while the family behind the business has lost what founder Scott Hunt describes as "a huge amount".

Unusually for brewery VAs, several brewing companies have also been impacted, losing significant sums of money due to Lotus’ position as a beer distributor as well as operating the online beer retailer Hops To Home, which the business had acquired from its founders. Some indie breweries whose beers were distributed by Lotus are owed tens of thousands of dollars, while others are owed smaller sums, often in the thousands. The Crafty Pint understands those smaller debts were largely accrued from beer sold through Hops To Home and the Valhalla taproom.

Among those brewing companies impacted are Seeker Brewing, who were owed approximately $38,000. Founder Jeff Argent says the collapse of the business has had a significant effect on the Wollongong-based operation.

“It’s just detrimental to cashflow," he said. "We haven’t been able to do basic repairs, we had upgrades we were looking to do, and it takes away from our ability to spend money on marketing expenses. That’s what we want to do: put our money into the future of the business.”

One of Seeker's forward-looking ideas: The Art Of The Flight.

He says he’s keen to learn lessons from the experience, questioning why the beer industry has become so reliant on bills getting paid after beer has already been sold, and suggesting an industry less reliant on invoices would be better for brewers and suppliers alike.

“We’re talking about how do we protect ourselves from this?” he said. “Why isn’t the industry built on cash on delivery?

“I think we need to find a better solution to how we operate. Right now, we’re paying a lot of upfront costs to make beer and continually chasing invoices.”

Now Lotus is set to be wound up, Scott told The Crafty Pint he understands most of the funds left in the business will go to administrators, adding that he felt terrible about the impact the administration has had on a number of other brewing companies.

“I feel awful and I really hate the fact we got into that situation," he said. “It's not like we were spending only other people's money. We remortgaged our house and we've put in hundreds and hundreds of thousands of dollars into this.

“Should we have shut down earlier? Probably in hindsight, but we had a lot of balls in the air at the time and we maybe didn’t react as quickly as we should have, but I reacted pretty quickly when we realised that we were incurring those debts.”

Even though patronage through their venues was starting to track the right way, he said: “The brewery just sucked the life of the business. There was an incredible amount of rent we were paying there; when we did the planning two years ago, things were going really well and it seemed like a very reasonable proposition.

"Eighteen months later, the economy had tanked and we couldn’t get enough people through the door.”

In May, the distribution arm of Lotus started winding down; Scott says they had attempted to sell some of their assets as patronage dropped, including the taproom in Geelong's CBD, which has since been sold by the administrators.

Worrells also undertook a “preliminary examination” of whether Lotus was solvent. Their report stated that the company may have “become insolvent from at least 30 June 2022”, adding that further investigation would be required to form a conclusive view on the timing and causes of that insolvency.

However, Scott disputes this finding, stating the report overlooked the money he and his wife had put into the business as well as money raised from a crowdfunding campaign in late 2022.

“It’s just wrong," he said. "We wouldn't have been able to trade for two years without paying our bills.

“We spent hundreds and hundreds of thousands of dollars setting up the brewery and we raised funds through the initial crowdfunding for that purpose. The costs of setting up the brewery are in the profit and loss, but the funds we raised through the crowdfund are not.

"Small businesses, when they're growing, make losses. It's not uncommon, and if the owners or whoever have to put in funds, that's how they grow."

Lotus also completed two equity crowdfunding campaigns in the last couple of years; the first with Birchal in November 2022 raised around $422,000, the second via OnMarket raised $100,000 and finished in May this year. Lotus is the fourth beer business in less than 12 months to enter voluntary administration following an equity crowdfund, with Dainton Beer, Akasha and Black Hops all appointing administrators but remaining operational.

UDATE 21/08: A spokesperson from Worrells told The Crafty Pint that the equity accounts were not disclosed in the administrator's report, adding:

External funding and ability to raise capital / equity are factors that are considered when conducting an overall assessment of a Company’s solvency position (together with a range of other indicators). But it is important that they are not looked at in isolation.

In this instance, although there was an increase in available cash from the crowd sourcing, the Company appears to have still been in a position where it was unable to meet its current and ongoing liabilities, which indicates insolvency. However as noted in the report, substantial further work would be required to determine an exact date that the Company became insolvent.

Mark Hubbard, who runs craft beverages crowdfunding campaigns for OnMarket, also questioned the insolvency finding in the report, citing the money the founders had put into the brewery since 2022. He told The Crafty Pint it appears that the business was always able to pay debts until trading conditions deteriorated significantly in the first half of this calendar year.

“The technical definition of insolvency is you can't pay your debts when they come due,” Mark said.

“That isn't just the resources that the company has on its balance sheet at the time, it's the resources that shareholders or capital providers or debt providers will provide.”

As part of the campaign, Mark says OnMarket had reviewed and published Lotus’ most recent externally prepared general purpose financial statements for the financial year ending June 2023. They also published the company's management accounts up until December of last year, and Mark personally verified that Lotus were up-to-date with their ATO obligations, given this has been one of the main factors behind breweries entering administration in the past couple of years.

“That was to reassure investors that the ATO could not unilaterally force them into a bad situation,” Mark said. “Up to that time, most of the VAs in the industry have been done because of unilateral action by the ATO.”

Mark adds that, with the crowdfund, they went above and beyond their required level of due diligence because of the issues facing the beer industry at the moment.

“I didn't have any cause for concern about his other liabilities at that point,” he said. “Because of enquiries I made and because the financial statements showed that the company had a surplus of assets over liabilities.”

As for the breweries caught up in the collapse of Lotus, who collectively are owed well over $100,000 according to the report to creditors, it's another blow at what is already a tough time.

Bathurst-based Reckless Brewing lost tens of thousands of dollars, with co-founder Jarrod Moore saying the financial hit has had a massive impact on the business. They consider themselves somewhat fortunate because they are a growing business, but he says this has ramifications when it comes to their ability to build on their marketing, as well as opening them up to greater risk should similar issues arise in the future.

“With how crazy the cost of living is hitting our industry, we have always been conservative and we budget for some bad debts," Jarrod said. “We recently increased this budget, and lucky we did, because that pretty much ate up the whole lot right there.”

The Crafty Pint previously explored the impact Voluntary Administrations are having on the industry, you can read those stories here and here.

About Will

Will Ziebell is a history graduate who knows more about The Wire than he does about beer. He was awarded the AIBA Best Media trophy for 2018; HBO have told him to please send his fan mail elsewhere. He can be found on Instagram, Twitter and TikTok.