The collapse of an Australian navy contractor linked to a high-profile Brisbane rugby league personality has left the Department of Defence $2m out of pocket and scores of local and foreign companies owed millions of dollars.
Raecorp International, also known as RCI Military Logistics, won a series of defence contracts worth more than $13m to supply port services to the Royal Australian Navy, including work at Manus Island and in ports around the world.
Almost 100 local and foreign companies have been left without payment and may never be able to recover their losses. The list of creditors includes government agencies such as the tax office and Workcover Queensland, as well as companies such as Telstra, Vodafone and port authorities around the world.
The owner of the company, William Rae, is a Brisbane businessman who was the founding director of the Brisbane Bombers’ bid for NRL status and was later involved in a takeover bid for the Gold Coast Titans.
Creditors owed money by Raecorp have been unable to contact Rae. His last known place of business in Queensland is empty and has been put on the market.
His past business ventures have spanned a broad range of fields and several continents, including one venture in which he boasted that his company provided wagyu beef to the White House.
Raecorp’s insolvency raises serious concerns that the Department of Defence ignored warning signs about its stability before it was awarded the contract. A Guardian Australia investigation into Raecorp’s activities shows courts had found that the business or related entities had acted inappropriately at the time it was awarded.
The relationship between the Department of Defence and Raecorp has deteriorated so badly that Raecorp attempted to sue the department in April over a pay dispute relating to the company’s work assisting the defence force while the Manus Island detention centre was being built in 2013.
Raecorp’s conduct concerned the department so much that it referred the company to the Australian federal police (AFP) for investigation in June 2013.
The department has severed its remaining ties with Raecorp, but has defended awarding the contract to the company.
Greens senator Scott Ludlam said it was “an extraordinary debacle” and called on the Department of Defence to investigate the circumstances of awarding the contract.
“There should be an inquiry from defence as to how this was allowed to occur,” he said.
“How was this contract awarded in the first place given the case history that was in the public domain and how can we prevent it happening in the future?”
Rae has not replied to emails or calls. His solicitor and a former business associate also failed to respond to requests for comment.
A ‘lack of business honesty and integrity’
Raecorp has been the subject of several adverse findings by courts and other public authorities dating back to 2007.
An early warning came in 2010, when the US defence logistics agency found that in 2007 Raecorp had filed inappropriate tax claims, had not complied with terms of its contracts and had failed to pay subcontractors. Raecorp’s conduct was so serious the agency applied to have the company – and Rae himself – barred from contracting with any executive branch of the US federal government.
In a scathing decision that described Raecorp’s conduct as a “wilful failure to perform”, Susan Chadick, special assistant for contracting integrity, wrote: “With such poor performance respondents have demonstrated a lack of business honesty and integrity which cannot be tolerated in government contractors.
“I have determined that respondents do not possess the level of responsibility required of those who do business with the government and that a period of debarment is necessary to ensure the full protection of the government’s business interests.”
The barring of Raecorp as a US contractor arose from a lengthy legal dispute during which a New York judge made a number of adverse findings against the company.
Raecorp was named as a co-defendant in the case, which also involved one of Rae’s other companies, UBS Provedores, and a 2006 contract with the United States Defence Energy Support Center (Desc).
In 2007 a US district court judge took issue with claims that Rae’s company had not been paid for services it had provided to a Norwegian shipping company, Wilhelmsen.
“UBS [Provedores] claims that the reason it has not been paid by the US government for the bunkering is because Wilhelmsen failed to produce substantiating documentation. There is nothing in the record to support UBS’ assertion that it had not been paid. To the contrary, documentation from both DESC and Military Sealift Command indicate that UBS has been paid in full for the Wilhelmsen bunkerings,” the judgment said.
Despite these findings, the Australian Department of Defence entered into the contract with Raecorp in early 2011. The department’s procurement guidelines note that one risk factor to be considered in awarding a tender is “whether there is a history of controversy and litigation”.
Guardian Australia put detailed questions to the department about how Raecorp was awarded the contract.
A spokeswoman said in a statement: “Defence conducted the tender process in full accordance with the commonwealth procurement guidelines in existence at the time.
Asked whether any review of procurement processes had been undertaken, she said: “Defence regularly reviews its procurement practices to ensure that procurement and contracting requirements deliver value for money. Defence conducts risk assessments in its procurements and considers risks and their potential impact when making decisions relating to value for money assessments, approvals of proposals to spend public money and the terms of the contract.”
The AFP confirmed the department referred the company for investigation in June 2013.
‘Shredding of documents’ alleged
The collapse of Raecorp has left frustrated creditors, who have been unable to contact Rae and may never be able to recover their losses.
The list of creditors includes almost 100 entities, including the tax office and Workcover Queensland, as well as port authorities in Australia and overseas.
One of the largest is the Total Food Network, which is owed $184,988 for work it provided in Papua New Guinea.
Company director Lui Garozzo said the group had suffered serious losses as a result of its dealings with Raecorp.
“We didn’t just lose on product we bought and sold. We had to air-freight product to very remote places so the impact on the business is quite large,” he said.
Some companies have started to take legal action. The ANZ Bank is suing Rae personally for $1m relating to a credit card arrangement.
Another creditor, Freshcorp, succeeded in gaining an order against Rae from the Western Australian magistrates court in August for $8,408 worth of goods it provided.
In April Raecorp was ordered by the Queensland civil and administrative tribunal to pay Australian Reef Pilots $12,221. In emails between the company and Rae obtained by Guardian Australia, Rae told the company the reason for not paying its outstanding debt was a legal dispute with the commonwealth.
“Due to a dispute with the commonwealth, we are currently awaiting funds from the commonwealth and when funds reach RCI we will on forward to yourself,” Rae wrote.
Rae’s email appears to refer to a court action for damages Raecorp had brought against the defence department in the Queensland district court in April 2014. The statement of claim shows that the company is claiming $83,806 from the department for invoices that were not paid.
The department has argued in response it owes Raecorp no money, and that all invoices were paid.
In the last correspondence Rae had with the company, Australian Reef Pilots warned it would seek an enforcement warrant issued by the magistrates court over the payment.
Rae responded: “Understand the below. This has just come to my attention and understand your below concerns yet it arrived on my desk today and I sent you the below email upon acknowledge. Please feel free to call me at any time and as I said below payment will be done and I am giving my word and I apologise and happy to meet and discuss as well.”The company was not paid. A Brisbane magistrates court enforcement officer later attempted to execute the warrant at Raecorp’s last known address in Queensland.
The bailiff’s report notes multiple attempts had been made to execute the warrant, but the business was found to be empty and a neighbouring business had reported “shredding of documents”.
After Raecorp went into voluntary liquidation, creditors met the appointed liquidator to discuss the debts on 23 June.
The chief executive of Reef Pilots, Simon Meyjes, told Guardian Australia: “There’s millions involved in this, and we’re an unsecured creditor. It was quite obvious we were only a small fish in a very big pond.”
The creditors who attended the meeting asked how events had escalated so far, and at least one asked whether the liquidator would pursue an insolvent trading claim against Rae.
“The chairperson outlined the investigations that would be undertaken and what would be required to pursue a claim,” the meeting’s minutes said. “The chairperson advised he would submit a report to Asic [the Australian Securities and Investments Commission] and may require funding to pursue a claim should it be commercial to do so.”
The Department of Defence spokeswoman said: “Any outstanding debts incurred by Raecorp are now a matter for the company’s liquidator to resolve.”
