California Fitness bosses 'overseas and uncontactable'

A California Fitness branch at Velocity@Novena Square on July 18 before it ceased operating the following day. After nearly 20 years here, the gym chain closed all its outlets suddenly that month.
A California Fitness branch at Velocity@Novena Square on July 18 before it ceased operating the following day. ST PHOTO: AZMI ATHNI
A California Fitness branch at Velocity@Novena Square on July 18 before it ceased operating the following day. After nearly 20 years here, the gym chain closed all its outlets suddenly that month.
A notice on the doors of a California Fitness outlet in Novena Square on July 20 saying all its outlets were closed.PHOTO: THE NEW PAPER

Lawyer acting for liquidators says there are insufficient funds to go after them

The individuals who continued to operate California Fitness even though the gym chain's parent company was millions in debt have been identified, but investigators have hit a snag - they are overseas and out of contact.

Lawyer Lionel Tay also told The Straits Times that the liquidators, for whom he acts, do not have the funds to go after them.

What this means for creditors, including the 27,000 members owed $20.8 million in unused gym access and unredeemed training sessions, is that the chance of getting their money back remains slim - for now.

After nearly 20 years of operating in Singapore, California Fitness closed all its outlets suddenly in July, a week after 12 of its gyms in Hong Kong shut due to debt.

  • 27k

    Number of members owed $20.8 million in unused gym access and unredeemed personal training sessions.

    $21.7m

    Amount of money owner JV Fitness was in the red in January last year, as revealed in a liquidation report last month. Yet it continued to sign new members and get them to pay fees up front. 

    20

    Number of years California Fitness operated in Singapore. It closed all its outlets suddenly in July.

Last month, a liquidation report revealed that owner JV Fitness was $21.7 million in the red in January last year, yet it signed new members and got them to pay fees up front.

It also showed that the debt owed to members makes up most of the $30.8 million which the chain's owner is liable for. JV Fitness' total assets on record are worth $5 million and include rental deposits paid to its landlords.

Mr Tay said: "The fact it was insolvent but continued (to operate) and take in new members without any realistic expectation of being able to meet its contractual obligations is, in the view of the liquidators, a potential breach of the Companies Act."

The liquidators have identified the management officers who may be responsible for operating the company at that time but they are overseas and uncontactable, said Mr Tay.

To complicate matters, JV Fitness' parent holding company is based in the British Virgin Islands and China.

 
 

"The liquidators' efforts to trace assets overseas are hampered by limited funds currently available," Mr Tay said.

Even if there are company funds available overseas to pay off its debts, "efforts to trace and claw back these funds require significant time and expenses", he said. For now, hope lies in getting litigation funders to pay for the investigation. In such cases, they will get a cut of the proceeds.

The Accounting and Corporate Regulatory Authority said it "will not hesitate to investigate the company if the liquidators... come across evidence suggesting the company or its directors had breached the Companies Act".

Questions also remain over why the chain could continue collecting money for gym packages when it was deep in debt.

Mr Tay noted that while the Companies Act aims to prevent companies from doing that, there is no regulatory body that checks if a business, especially one that collects prepayments, is financially able to fulfil its contracts.

A version of this article appeared in the print edition of The Straits Times on September 14, 2016, with the headline 'California Fitness bosses 'overseas and uncontactable''. Print Edition | Subscribe