JUMP! asset freezing extension puts future in jeopardy

By Nick Hall | 01 Jul 2019 View comments

The Australian Competition and Consumer Commission’s (ACCC) case against embattled franchise JUMP! Swim Schools is mounting. In a pre-trial case management hearing in Federal Court, the watchdog called for greater sanctions and a JUMP! asset freezing extension.

In June, the Federal Court issued freezing orders against the company and founder Ian Michael Campbell.

The move came just days before the ACCC officially launched legal action against the franchise, however on Friday, new concerns were raised.

The watchdog argued that the asset freezing order be extended to cover foreign entities and transactions.

JUMP! foreign entities

The primary concerns related to the incorporation of Jump Swim School Franchise Corp. The US company, of which Campbell is a significant shareholder, first came to light after the ACCC revealed evidence of substantial transfers between the business and other JUMP! entities.

At the latest pre-trial case management hearing, the ACCC claimed that transfers had continued despite the Australian entity freezing orders.

The claim was enough to spark action from the Federal Court.

Justice O’Bryan ordered that the freezing orders be amended immediately to clarify that Campbell and JUMP!’s related entities are not permitted to remove assets housed within Australian operations.

“You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia, or dispose of, deal with or diminish the value of any of your ex-Australian assets,” O’Bryan told the court.

Additionally, the orders also reiterated that Campbell and the business must not directly or indirectly cause any of their debtors to make a payment to another person or entity instead of to them.

While the freezing order extension adds further credibility to the ACCC’s case, it may have dire consequences for JUMP!’s proposed Deed of Company Arrangement (DOCA).

JUMP! asset freezing extension results

In May, JUMP! Swim Schools’ franchisor Swim Loops Pty Ltd entered into voluntary administration; however it wasn’t until mid-June that the extent of the company’s financial failings were disclosed.

In a creditor’s report obtained by Inside Franchise Business, administrator Glenn O’Kearney revealed that Swim Loops owes more than $15m to creditors, $10m of which is owed to other JUMP! entities.

The administrator recommended that creditors accept the proposed DOCA on the basis that they would likely receive a stronger return, as opposed to entering liquidation or winding the company up.

“Placing the company into liquidation will likely result in a lower or nil return being available to creditors than under the proposed DOCA. The proposed DOCA allows for a contribution of $350,000 which would not be available in liquidation,” the report stated.

This latest Federal Court order threatens to jeopardise that move, however. The JUMP! asset freezing extension could prevent the DOCA from entered into at all, leaving creditors little choice moving forward.

The matter is being listed for a further case management hearing before the docket judge on a date to be fixed.