Inside the Pets Paradise receivership: The five events that triggered the collapse

Pets Paradise has been placed into receivership after the Bank of Melbourne seized control of the ailing chain of 62 pet stores controlled by Gary Diamond.

The Bank of Melbourne, which is owed $11 million, yesterday appointed Deloitte as receivers to Pets Paradise, part of Diamond’s Paradise Retail Holdings group.

Deloitte Restructuring Services partners Tim Norman, Sal Algeri and John Greig have been appointed as receivers and managers of a number of companies in the Pets Paradise and Billy Baxter’s restaurants group of companies, which includes Pet Goods Direct and Pets R Fun.

The group has a workforce of 170 staff across its operations and Norman said stores operated by franchisees are not in receivership.

A creditors’ meeting will occur shortly along with a sale of the businesses.

Both company-owned and franchised stores will continue to trade as normal, but receivers said company-operated Pets Paradise stores had been struggling for 18 months.

Here are the five events that triggered Pets Paradise’s demise:

1. Slow retail environment

While the receivers are emphasising that it is still “early days” in the process, Deloitte has indicated the slow retail environment has played a significant role in the collapse of Pets Paradise.

“The group’s financial distress has largely been caused by underperforming, company-operated stores and significant rental exposures from store closures over the last 18 months,” said Norman.

2. $1.2 million debt to a franchisee

Last week, the Federal Court in South Australia appointed provisional liquidators to one of the companies in the group, Billy Baxter’s (Franchising), after it failed to pay a franchisee $1.2 million in court-ordered damages.

Franchisees Ross and Sue Pollard sued Billy Baxter’s over the failure of their Billy Baxter’s franchise in the Adelaide suburb of Glenelg.

Billy Baxter’s is part of the Paradise Retail Holdings group, which also operates Pets Paradise, Global Pet Products and Warner Bros’ Australian retail operations.

The Pollards claimed Billy Baxter’s representative Phillip Mauviel misled them about revenue and profit that could be made in the first year of operation. They claimed Mauviel induced them to enter into the franchise agreement by misleading and deceptive conduct, by projecting a $1.3 million turnover for the business.

3. Diamond’s home is re-mortgaged by his lawyers

Fairfax has reported that land title records show Diamond’s home, in the Melbourne suburb of Harkaway, is subject to a high-interest second mortgage taken out by his lawyers, Macpherson & Kelley.

Interest on the $60,000 loan is charged at 20% with repayments due every month until next May.

A Deloitte spokesperson was unable to comment on the issue.

4. Trade Practices Act breach

In a separate legal case earlier this year, Pets Paradise was found by the Federal Court to have breached the Trade Practices Act by making misleading and deceptive claims when franchisees signed up.

Franchisees Elizabeth Campbell and Lynda Donnelly, owners of the business Pampered Paws Connection, took legal action on behalf of themselves and other present or former Pets Paradise franchisees, accusing Pets Paradise of misleading and deceptive conduct over whether their franchise agreement in fact compelled them to purchase stock only from Global Pet Products.

5. A deadly puppy virus outbreak

Pets Paradise was hit earlier this year by an outbreak of parvovirus, which causes bloody dysentery and vomiting.

The RSPCA raided a puppy factory in Victoria’s east as part of an investigation into the source of the highly contagious disease, which claimed the lives of puppies purchased from three Pets Paradise stores.

A spokesperson for Deloitte told SmartCompany there was not a link between the puppy virus and the collapse of Pets Paradise.

“There is no connection there; there is no link to the parvovirus issue that some of the outlets experienced recently. This is all about the underperformance of the group,” he said.

SmartCompany contacted Pets Paradise but the company declined to comment.