Lockout laws and debt from expansion led to Keystones demise

The Keystone Group, which has entered receivership, has released a statement claiming that Sydney’s lockout laws and debt incurred from its aggressive expansion program were key contributors to the business’ troubles.

On 28 June, Morgan Kelly and Ryan Eagle of Ferrier Hodgson were appointed Receivers and Managers, charged with the task of assessing each of the group’s venues in preparation for a sales campaign.

Keystone venues include Bungalow 8, Cargo Bar, the Jamie’s Italian restaurants, Chophouse (Sydney and Perth), Gazebo, Kingsleys (Brisbane, Woolloomooloo), Manly Wine, Sugarmill Hotel, The Rook and The Winery.

A statement issued by Ferrier Hodgson said the receivership is the result of the company’s inability to “reach agreement with the board on key aspects of the Keystone Group’s financial structure.”

A subsequent statement issued by Richard Facioni, Keystone’s executive director, and John Duncan, managing director, said the business is “operationally strong” but has come to struggle under debt raised to fund an expansion strategy,

 "Two years ago The Keystone Hospitality Group undertook a major expansion program, including acquisitions, to become a significantly larger, national group,” the statement reads.

"Keystone today is an operationally strong business with over 1,000 employees across the country, with a number of iconic venues and brands within its portfolio and a highly dedicated team. However, the debt raised to undertake its expansion, combined with changes to the local market, including lock out laws, have placed significant financial strain on the business. As a result, the senior lenders to Keystone took the decision today (28 June) to appoint receivers to the group to pursue a sale process.

"All our venues will continue to operate as usual and Keystone's management will be working closely with the receivers during this process to ensure minimal disruption to the business and to ensure a successful outcome to the sale process."

In March last year, Keystone’s Cargo Bar & Lounge, was put on the market, with the company saying the sale would allow it to pursue other avenues of growth, including interstate expansion. The same motivation was given for the February sale of the Newtown Hotel to the Colonial Leisure Group.

Keystone isn’t the first hospitality group to list Sydney’s lockout laws as a roadblock to profitability. Introduced in 2014 by the O’Farrell government as a means of curbing late night alcohol fuelled violence, the measures ban patrons from being able to enter a venue for the first time after 1.30am, with pubs and clubs are no longer permitted to serve alcohol to patrons after 3am. 

Businesses including Hugo’s Lounge, La Cita and The Flinders all blamed the lockout laws for their closures.

“We said it would destroy business, we said it would destroy staff, and here we are,” Hugo’s Lounge owner, Dave Evans said at the time.

The Australian Hotels Association (AHA NSW) recently used its submission to the Callinan review – which is assessing the effectiveness of the lockout laws – to argue that there’s no evidence to support the 1.30am restriction and as such, the measure should be removed.

Lord Mayor Clover Moore also called for flexibility, asking for some elements of the laws to be eased in order to improve the city’s nightlife while still ensuring the safety of its residents.

“Rather than addressing the real problems, the NSW government’s response was to introduce a blanket lockout across the city centre and Kings Cross (with an inexplicable exemption for the casino),” Moore said.

“It was a sledgehammer when what we needed was a well-researched, evidence based, flexible response using transport, planning, licensing and police.”

The Callinan Review’s findings will be released later this year.