Fitness Franchise Runs Out Of Puff

The Age

Wednesday December 3, 2008

MATHEW MURPHY

FITNESS industry franchise Beach House Health and Fitness has been placed in administration as creditors chase more than $20 million in unpaid debts.

Administrator Cor Cordis held its first meeting of creditors in Melbourne on Monday, which about 20 parties attended.

A BusinessDay investigation in May revealed that Beach House was facing allegations of privacy breaches regarding the handling of clients' personal details, the closure or rebranding of more than a dozen clubs and mounting legal action from creditors.

Cor Cordis partner Bruno Secatore said the $20 million figure included the full terms of leases that landlords were attempting to recover.

"At the moment we are trying to look after all interests, including gym members' interests," he said. "At this point, we have had no calls from members, it is more the landlords and franchisees. The locations the company itself owns continue to operate and we are trying to see by the end of the week if we have something to sell."

It has been a quick fall for Beach House, which last year was ranked second by BRW magazine in its "hot franchises" issue. Beach House founder Adam Price said he hoped to have 100 franchises around Australia by the end of 2007, but at least 13 have closed or been sold.

Beach House centres in Morwell, Warrnambool and the group's first at Chelsea Heights, which Mr Price opened in 1998, have all closed their doors. Beach House has about 30 clubs left in operation around Australia.

Already this year Beach House has settled a case with the Smorgon family's financing group, Baystreet, after Baystreet pursued legal action for unpaid debts.

Property giant Westfield also made an application to have the company wound up in April after Beach House failed to pay rent it owed.

Current creditors include Commonwealth Bank, which is owed about $10 million by Beach House. It is believed that not all Beach House's creditors have come forward.

The development throws the future of dozens of Beach House franchises into doubt. Several franchise owners that spoke to BusinessDay said they stood to lose more than $1 million in investments.

Bill Bowran, managing director of software company QVisual, said Beach House owed him $50,000 in unpaid licensing fees but conceded he was "right down the bottom of the list in terms of the amount of money they owe".

"We are happy to work with the administrators so that the clubs can continue to use the software," he said.

"This is a simply a case where the management of the company has misrepresented a raft of significant things that have happened over the last 12 months and, despite continued promises that they would pay their debts, they haven't and they are still using the software."

The Franchise Council of Australia said while Beach House was not one of its members, franchisees who were confused about their legal rights should contact the organisation.

Beach House did not return calls from BusinessDay.

© 2008 The Age

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