The charity Leeuwin Ocean Adventure Foundation has been thrown an insolvency lifeline after sailing close to the wind during 2023.
Administrators KordaMentha were called in on 21st August, 2023 as the Leeuwin’s dwindling cash reserves ran out. A forensic report to the Board showed the charity would be unable to sustain its ongoing level of expenditure without new funding support.
In terrific news, Andrew Forrest’s Minderoo Foundation responded to the administrator’s call for help in saving the charity. Minderoo’s million-dollar bailout proposal recapitalises the charity via a deed of company arrangement (DOCA – a binding agreement with the creditors). It allows Leeuwin to fund the administrators’ trading costs, legal costs and fees, as well pay creditors in full. Minderoo is also providing ongoing financial support which will retain employees in their roles.
STS Leeuwin II is Australia’s largest sail-training tall ship, a beautiful three-masted 1850’s-style barquentine built, owned and operated in Western Australia by the Leeuwin Ocean Adventure Foundation Limited, a registered Western Australian charity. The Leeuwin runs programs aiming to develop core life skills or support high school students; building their resilience and employability.
A look at the charity’s financials shows the organisation has been consistently trading at a loss since 2014. The annual report for the year ended 30 June 2023 has not yet been loaded on the ACNC’s website, however the West Australian reports a loss of $656,000 with a sharp decline in grants (note: I will update this story when the financials are available).
The newspaper also reports some internal conflict at a tough time for the charity.
Leeuwin’s funding has been declining with most income received from (lumpy and restricted) government grants and sponsorships. Employee and ship maintenance costs are largely fixed. So the graphs (below) tell the story: annual spending is consistently higher than income, resulting in declining liquidity and Net Assets.
In 2022, the charity received a significant $1.1m grant from the Commonwealth Community Development grant to refit Leeuwin II, including dry docking, ballast removal, inspection of the ship’s hull and frames, new freshwater tank and engine works. The resulting increase in ship repair costs was funded from cash reserves, driving up trade receivables and current liabilities (supplier debts and unspent grant income). Acquitting the project was expected to help replenish the cash reserve in 2022/23.
In its financial reports, the Board had noted that its cash reserve of $1m is inadequate for ship replacement costs scheduled around 2030. And ongoing trading losses have eroded the reserve. It appears the Leeuwin Board is now exploring an extension of the ship’s life, rather than a capital campaign to fund its replacement.
Leeuwin says Minderoo is hoping to make an exit from the DOCA after about two years. So the Leeuwin Board and staff have bought some time to rethink its financial model in the short-term and develop a plan to ensure this majestic tall ship can continue sailing (and benefiting young and disadvantaged people) over the long-term.
For more information on the steps to achieve income growth and financial stability for your charity or nonprofit organisation read more here.