Story first published in issue #197 of Hyper magazine and re-published 17th March 2010 by GamesIndustry.biz.
THE RISE AND FALLOUT OF RED ANT
They were one of Australia’s largest independent videogame distributors until the Australian dollar crashed and brought them down with it. A year on from the collapse of Red Ant Enterprises, documents have emerged that raise serious questions about unexplained loans made by the company, as well as the movements of its director and his wife.
Red Ant was on a high. The videogame and DVD distributor that had only been set up in 2001 by entrepreneur Julian White had, within the space of a year, transformed itself from being a speck in the vast gaming ocean into a force to be reckoned with. It was a small but rapidly growing business, securing contracts to distribute blockbuster gaming titles that were not only highly anticipated by the Australian market, but also guaranteed to bring in millions in profits.
“We were the Titanic,” said a former product manager at Red Ant who wished to not be named.
“We had the biggest publishers, we had the biggest games, and everybody in this industry had all of a sudden changed their perception of Red Ant and people started to pay attention. People were ringing us and started hassling us instead of the other way around,” he said.
Like the Titanic, Red Ant did appear to be unsinkable. The independent Australian distributor had just come off the back of the success of Fallout 3, a science-fiction epic that took out numerous Game of the Year awards and became a household gaming staple. They had just signed a series of lucrative contracts with some of the largest game publishers in the world and were preparing to distribute a range of high profile titles that everyone anticipated would bring them yet more critical and commercial success for the year to come.
With an energetic and passionate team working behind the scenes, an enormous rise in their games’ sales and the promise of many more on the horizon, Red Ant’s future looked watertight. However, in September of 2008, Red Ant sprung a leak that would ultimately lead to its downfall.
When the Australian dollar crashed at the beginning of what we now refer to as the Global Financial Crisis, it spelled trouble for the game and DVD distributor. As an importer of videogames and films from overseas, dealing mostly in Euros, the weakened Aussie dollar saw Red Ant lose money with every order they made. Being locked into contracts meant they had to go through with orders made prior to the dollar weakening and, even though the sales of their titles were up, the losses were far greater.
The receiver and manager of Red Ant, David Lombe from international accounting and consulting firm Deloitte, explained that the issue with foreign exchange led to the company becoming incapable of paying its debts.
“In Red Ant’s situation they didn’t react quickly enough to [the GFC] – perhaps it wasn’t possible for them to react, but whatever the reason, they didn’t hedge those purchases, so in effect, they had significant foreign currency losses, which basically stripped out the working capital of the business. That was fundamentally the problem,” he said.
Many staff members in product managing and sales positions began to feel the pinch in September as the value of the dollar plummeted. Product managers that once had the luxury of ordering stock when the Australian dollar was worth 60 Euro cents were suddenly faced with a dollar that was only worth 40 Euro cents. While it may be hard to fathom how a difference of 20 Euro cents could bring a company down, when large orders were made the losses were significant.
“The only thing that was really relevant to a lot of people was how strong or weak the currency was,” said the former national sales manager at Red Ant, Roy Stanton.
“For us, or any other business that purchased in Euros, that meant the Australian dollar weakened by 20% in a matter of a couple of days. That was the financial crisis for us,” he said.
And while those in management were aware that they had a problem on their hands, it didn’t seem like anyone was aware of the full extent of the crisis. Business carried on as usual, with the company signing on to distribute games by another big player in the game publishing industry, Konami, in October 2008 – a month into the weakened dollar. When asked why Red Ant took on such a large client during such financially unstable times, Stanton said that the company believed that things would improve.
“You run a business to grow your business so until someone comes up to you and gives you the axe, you’ve got to pursue business as usual,” he said.
“If something’s bad today it’s probably going to be good tomorrow. Things tend to go in swings and roundabouts. So was the decision bad? I don’t think so. Was the timing bad? Yeah, probably.”
On top of a crippled Australian dollar, David Lombe also attributed the collapse of Red Ant to another significant problem that they faced: being both a retailer and a wholesaler.
“One of the other things that was interesting, and it seems to be a trend in this industry, is that distributors – that is the people who sell to the retailers – tend to take on the risk of being a wholesaler plus the risk of being a retailer. And what I mean by that is when they’re selling to a retailer, they will allow that retailer to return product to a certain level, and what that often means is the product that they’ve returned can’t be sold because it’s simply stuff that isn’t selling, so it’s got to be severely discounted before it gets to sale…and that affects profitability,” he said.
“The primary reason [Red Ant] failed was because of foreign exchange issues, but they were losing money on both those limbs.”
Kept In The Dark
Former finance manager at Red Ant, Carol Philpott, said that while the issues surrounding exchange rates were evident back in September of 2008, it didn’t necessarily spell the end of the company. She believed that Red Ant could trade out of the problem it had found itself in – had the bank allowed it to.
“It was the bank that foreclosed,” she said.
“Basically we were talking to our creditors and going through some scenarios to arrange some payment plans which they accepted. We had the bulk for our creditors on board, and they were happy with the payment plans, but the bank said no. We didn’t have a loan as such, but basically the bank didn’t want to take the risk.
“The bank sent in the auditors and the auditors become the receivers so I think it was unfortunate because Red Ant could have gotten out of it.”
Amidst auditors making visits to the company, staff members were still assured that things were fine.
Redundancies were being made in November and by this stage, many employees of the company had started to sense that the company’s problems were greater than they were first thought to be. Product managers and those in the marketing department found that budgets and expenses weren’t being signed off and marketing campaigns were being knocked back for no apparent reason. Retailer deadlines weren’t being met because of the hold-up in product orders, and the company started receiving calls from suppliers who hadn’t been paid for work that they’d done for Red Ant. And as these calls became more frequent, people in the office started to talk.
Raj Wakeling, who worked as a product sales representative at Red Ant and also provided administrative support to the sales executive said that there were gossip and rumours in the office that something was going to happen, but no one knew how drastic it would be.
“I would say that it wasn’t something that everybody knew. It was talked about in whispers, very quietly – ‘Oh I heard this is happening, I heard that is happening’ – it was still very hush-hush, until the official announcement was made.”
That official announcement came in early December.
Those who were let go in and before December were paid off, while those who stayed on until January (when the company went into receivership) missed out.
It was only in the space of a few weeks that most Red Ant employees got the sense that the company was in trouble to the time when the first large round of redundancies was made. And within weeks of the redundancies, the company was handed over to the receivers.
“It happened in a blink of an eye,” said Red Ant’s managing director, Julian White.
“I was devastated. I wouldn’t wish it on my worst enemy and it essentially came out of left field so we did everything we could. We actually contacted the bank before they even knew there was a problem and they were surprised and appreciative that we came forward; they looked at providing additional funding but unfortunately it was probably the worst time, the financial system was very nervous and cautious and as consequence they were unable to cover the hole that was created.
“We sold all the assets, the buildings, all my private assets were sold right away. Me and my wife and my family walked out with the clothes on our backs and that was it.”
Those who were let go in December were then faced with entering the holiday season without a job and having to wait for months before positions would open up in the new-year. The worsening financial climate also meant that jobs were scarce. Roy Stanton had to sell his house to support himself, while other former employees found themselves going through a long period of unemployment, relying heavily on what savings they had.
The employees who stayed on until January found out the day before pay day that they were not being paid for the previous month’s work. Julian White had told his staff that there simply was no money left in the company – no enough to pay staff wages, superannuation, sick-leave and holiday pay. Some employees were owed up to $27,000 in unpaid wages and holiday leave.
The high-profile titles and software that Red Ant had secured reverted back to their publishers and suppliers and staff were told no money would be seen unless the company was sold, and even then, there was no guarantee.
“In fairness, Julian White was noticeably distressed – he was not his usual self, he seemed to be really upset and apologised and expressed his grief at the situation,” Wakeling said.
“I couldn’t have faulted him – I don’t think he was uncaring about the situation, obviously it was his business and he didn’t want to see it fail – I guess it’s got to hurt your pride a bit, and I think he realised how we all felt about it and how it would affect us, so I don’t think he was uncaring. But I don’t think he felt any responsibility to assist anyone beyond apologising.”
Despite finding themselves in a situation where a company that they’d worked incredibly hard for had fallen apart, many former employees held no animosity towards the director or management – after all, he had been quite open with them about his own losses, too.
“It was Julian’s company – he founded the company and built it up and he as quite emotional when he was telling everyone,” Philpott said.
There were accounts of White crying when he broke the news to his staff, informing them that he’d had to sell his house and withdraw his children from private schools and put them into public schools because he could not afford any of it. It was believed that it was everyone’s loss – the employees may have lost their wages and creditors may have lost some money, but it appeared that Julian White had lost everything he’d spent the past eight years working for.
But amidst all of this, something wasn’t quite right, and some former employees sensed this not long after the company collapsed.
Within a month of the company going into receivership, he had started up another company – a licencing consultancy agency by the name of Tuff Kat, and brought former Red Ant client, 505 Games, and former Red Ant staffer, Tim Emmerick, over with him. His actions led some his former employees to wonder how he managed to start another business and support another employee when he claimed to have lost everything just weeks earlier.
When the company’s Report As To Affairs was released late in October of 2009, it revealed that Red Ant had loaned more than $2 million to numerous other companies and trust funds – all owned by Julian White. Question marks still hang over when and why these loans were made, as well as where the money is now, especially given that there are creditors and former employees who are waiting to be paid almost a year later.
The report stated that White had loaned almost $700,000 to himself, with Red Ant’s holding company (also owned by White), borrowing $1,100,496. Almost $400,000 went to companies registered under the names Mad4Games Australia, Green Monkey, and White Commerce Trust – all companies of which Julian White was a director. All his other registered companies were still in operation at the time of writing, although his wife, Anne White, had assumed the role of both director and secretary of most of those companies before stepping down from all of those posts in late 2009.
White explained that all the aforementioned companies that were loaned money were set up over the years in association with Red Ant and that all the loans were made for business purposes only, and all the money was put back into the business through those companies, although he did not say how. When asked about his other companies, White said: “The bank has a fixed and floating charge over all those companies you’re referring to,” which would mean that all his other companies are in debt to the bank, which raises questions as to whether those companies have the capacity to repay the loans they borrowed from Red Ant.
When asked why he had made a loan to himself, White responded with: “If you go back through the history of personal loans, they were paid off by dividends.” However, loans cannot be repaid through dividends – they can only be paid off through loan repayments and interest. Furthermore, if those loans were paid off, they would not have appeared on the Report as still being outstanding.
Associate professor of business law and Taxation at the University of NSW, Frank Zumbo, who couldn’t comment specifically on the Red Ant case, said that while inter-business transactions aren’t uncommon, it raises serious questions about the business practices of an individual if they are lending money to themselves. More importantly, it raises serious legal concerns if the money was loaned when the company was insolvent, which then raises the question of whether or not the Corporations Act was breached.
The report revealed that while more than $2 million had been moved to other companies owned by White, Red Ant had accrued almost $10 million in debt to its creditors and owed its former employees approximately $250,000. The list of hundreds of creditors showed that the company owed amounts of money ranging from hundreds of dollars into the millions. Publisher of Fallout 3, Bethesda, were owed $2,860,046 – they declined to comment on their loss.
Bethesda weren’t the only game publisher to lose money in the fall of Red Ant. Other big players within in the industry also appeared in the list of Red Ant’s unsecured creditors, including (all in Australian Dollars):
• 505 Games – $220,049
• Capcom – $1,128,591
• Midway – $1,923,687
• Black Bean Games – $151,616
Further to the list of creditors, the receiver’s report also listed two addresses as being the place of residence of Julian White – one being a large two-storey, newly built house in the affluent Sydney suburb of Turramurra, and the other, which was also listed as being the operating address of White’s other companies, a mansion in Sydney’s northern suburb of Dural. The house in Dural was listed as recently as November of this year in the Report as to Affairs and Anne White’s resignation document from her directorships as the residence of both Julian and Anne White. White said that his property in Dural had been auctioned off in June and that he no longer lived there, although he would not reveal where he now lived. The property was indeed sold to a couple for the sum of $2,430,000, but despite his assertion that the property in Dural was no longer his place of residence, the Report as to Affairs initialled and signed by him and his wife as recent as October of 2009 still list it as his home address. In the Report As To Affairs, White signed off on every page to confirm that the details were accurate and correct, including the pages stating that he lived in the property in Dural.
A director’s search on Julian White showed that his companies Green Monkey, Julianne Industries, Mad4Games Australia Pty Ltd, Tuff Kat, Red Ant Holdings, White Super Pty Ltd, and TK Ownership Pty Ltd all operated out of this premise, which covered hectares of land, came with a large swimming pool, manicured lawn, a water fountain that greeted guests who drove up the long driveway, and security cameras at the entrance.
ASIC searches on all these companies revealed little information – there was no explanation anywhere as to what these companies did – the only information that was available on the public record was that they had been loaned a significant sum of money by Red Ant.
In mid-November 2009, documents were also lodged to ASIC across all companies signifying the resignation of Anne White as director and secretary from the majority of the aforementioned companies – all on the same day. Her resignation came just two days before the Report As To Affairs – which detailed the debt that her companies were in to Red Ant – was lodged with ASIC. This raises questions as to when and why these companies were put in Anne White’s name, and what caused her to step down from all these roles at the same time. Julian White declined to comment on this and Anne White could not be contacted.
A lot is still unknown about the inner-workings of the company and where a lot of its money has ended up. When contacted in October, the liquidators PPB Pty Ltd said they were not ready to make a comment on whether they would chase up loans that Red Ant made to other companies. In December, they did not respond to further phone calls and it is still not clear whether the liquidator will recoup much of Red Ant’s outstanding debts.
Standing outside Red Ant’s office in Baulkham Hills, the signage was still there, albeit with a missing letter ‘A’. All lights were switched off; calls to the office’s phone number and intercom yielded no results, and it was fairly apparent that no one had worked here in a long time – the office’s only inhabitant was a life-size statue of a character from the company’s massive hit and Game of the Year, Fallout 3. With Red Ant’s symbol of success standing in an empty office of a company that was once thought to be unsinkable, one could only imagine what it was like to have been there when the company rode its high, took its fall, and lost it all.
[Note from author: This whole investigation started out of curiosity. While I was working at Mania in early 2009, I had been in contact with Red Ant’s PR department to organise promotions, when one day I emailed them and received an auto-reply telling me that my point of contact with the company no longer worked there. I was referred to someone else, who had the same auto-reply. When I checked with my colleagues, many of them were also having trouble contacting Red Ant. A few days later, I read reports that the company had gone into receivership. It all seemed awfully sudden and the reports/blog entries I was reading from people covering the company collapse didn’t really answer any questions. I remained curious about it but did nothing until late 2009 when I decided to do some quick searches on the company to see what I’d find. These quick searches led to more than two months of collecting and analysing information, conducting interviews, liaising with academics and experts, and trying to piece together a story about what really happened. The above article is the result of my investigation. A big thank you to everyone who made a contribution.]
© Tracey Lien 2010