Berjaya Group, owned by Malaysian tycoon Vincent Tan, has seen RM63 million wash down the drain after its Australian venture with subsidiary CarLovers Carwash went into receivership on July 10, according to a report in The Australian Financial Review on July 19.

However Berjaya, which owns 97 percent of CarLovers, says that after earlier write-downs its exposure is about RM25.3 million.

Administrator Stuart Ariff told creditors in Sydney last Thursday that CarLovers had a cash deficiency of RM11.4 million.

CarLovers is also being investigated if it had traded while insolvent - an offence under Australia's tough Corporations Law.

Largest creditor

Ariff said creditors may launch legal action against the company's directors, or its parent company, to recover unsecured loans to CarLovers of between RM12.6-RM17.7 million.

Berjaya Group is the largest creditor.

CarLovers problems began shortly after it was floated in 1994. By 1998 it was dotting the country in what was seen then as following the franchise chains craze after other stirring debuts by the likes of Sizzler and Lone Star - all of which very quickly became a "doddle".

But unlike the restaurant franchises, CarLovers's attempt to make washing cars a sort of "aquatic adventure", with customers feeding coins into machines in separate wash-bays, turned out to be a lousy business investment idea.

These days CarLovers sites are mostly empty, even on weekends.

According to Pricewaterhouse-Coopers, for each A$100 (RM253) income that the company earned in 2002, A20c (RM0.50) came from franchise fees - barely enough return for that kind of investment in the first place.

CarLovers's problems grew bigger when franchises stayed mostly flat, with the initial growth spurt coming "instead from sites that the company leased and operated itself," the AFR reports says.

Big write-downs

Moreover, CarLovers had caged itself into expensive leases of up to 20 years, and what's more, on sites where carwashes never reached projected growth targets. Almost immediately CarLovers began making many big write-downs.

Berjaya Group quietly, but quickly, replaced senior executives at CarLovers after most of the original directors had resigned. But the company's problems worsened when, in 1998, more and more franchisees stopped paying franchise fees, claiming CarLovers wasn't honouring its services provision agreement.

CarLovers has also had its share of problems with Australia's regulatory authorities. In 1994 it exchanged heated words with the Australian Securities and Investment Commission over the wording in some of its prospectus.

In 1998, Ernst & Young, after making a qualification of whether CarLovers was a going concern - depending "on a letter of comfort from Berjaya" - was swiftly replaced as the company's auditor.

MANJIT BHATIA is managing director of AsiaRisk - a political and economic research and risk analysis consultancy in Australia. The writer specialises in international economics and politics and the Asia Pacific region.