Data#3 closes QDS, assesses debt exposure

Data#3 closes QDS, assesses debt exposure

Data#3 has closed the Brisbane office of Queensland Desktop Services, the joint venture it operated with the now-defunct Powerlan Qld.

A niche company, QDS was established to fulfil IT procurement contracts for two Queensland Government agencies. Its sister company, Queensland Software Services, was formed between the same two companies to serve a four-year Microsoft licensing deal with the Queensland Government.

Upon Powerlan Qld entering administration, the contracts with the various government agencies were terminated. New contracts have since been issued to Data#3, which will fulfil them independently.

Data#3 recently moved a number of its operations to new premises when it became apparent that the company could not satisfy the contracts from the existing QDS premises, said Data#3 CEO John Grant. "In order to keep the integrity of the deal, we decided to move the businesses to our new distribution and integration centre," he said.

The centre is located in the Brisbane suburb of Milton and has not officially been opened yet.

The litigation option

When Data#3 announced its annual financial results late last month, the service provider also announced that legal action may be required to resolve lingering issues concerning the QDS and QSS joint ventures. The company stated that several joint venture assets may have been misused by its former partner.

The company has now released its annual report, in which it estimates it has been exposed to the consolidated entity's losses of anywhere between $2 million and $8 million.

Thankfully for Data#3, it recently reported strong earnings and the major supplier of one of the joint-venture partnerships has agreed to defer $4.5 million of the debt for 12 months interest free while the matter is resolved. Grant declined to name the supplier.

According to Grant, both QDS and QSS had been profitable businesses right up until Powerlan's surprise move. "Both joint ventures were purpose-built and traded profitably."

At the time the business was dissolved, the assets of QDS totalled just over $4 million, with liabilities of just over $2.7 million. QSS ran into some difficulties however - it ended up with assets of $14 million and liabilities of some $22 million.

When pressed about these figures, Grant revealed that the partnership between Data#3 and Powerlan Qld involved the joint venture entity distributing revenue to its parent companies in the lag-time between being paid by customers and the deadline for paying suppliers. The majority of that income would be returned to the joint venture company once the suppliers were due to be paid, minus a small percentage as profit for the joint-venture partners.

In the case of QSS, a total of $8.45 million was advanced equally to both partners ($4.225m each), of which $7.64 million was to be repaid to QSS by August 31. "The timing of Powerlan Qld's administration meant that they did not meet that repayment," Grant said.

This meant that the management of Powerlan Qld placed the company in administration between the period in which it realised income and the due date to return funds to QSS. Through no fault of its own, Data#3 remains exposed to QSS's inability to pay its creditors.

Grant said this is one of several reasons why legal action is being considered to protect Data#3 from Powerlan's collapse. "If there is a significant shortfall, legal remedies will be the course of action," he said.

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