Paradise lost: Virtical pub empire’s problems have roots in Eden

The 120-year-old Hotel Australasia, which Rankin had purchased from the local council in 2020 and spent months meticulously restoring, piqued the interest of Palasty, who made an offer that trumped all others.

But the $1.65 million deal turned into a three-year legal battle that Rankin says “ruined his life”.

Until recently, Palasty was the head of property companies under the umbrella of developer Virtical, which is now being investigated by the Tax Office over more than $100 million in GST refunds. It could be one of the biggest cases of its kind if the refunds are proven to be false.

As revealed by The Australian Financial Review last week, at least one audit found $20 million worth of claimed development expenses on a block of land in Tasmania did not happen.

Virtical’s property empire spent $125 million in four months last year on iconic Sydney and Melbourne hotels and pubs, including the Republic Hotel in Sydney and the Adelphi Hotel in Melbourne, and even made a $61 million bid for the Kinselas and Courthouse hotels in Sydney’s Taylor Square.

That empire is now in tatters, as financiers swooped in this month and put its venues into administration over $91 million in unpaid debts.

Last Friday, Palasty jumped ship as managing director by filing resignation forms with ASIC.

Eden paradise turns sour

The story of Virtical and Palasty had its beginnings more than four years ago in the sleepy town of Eden. Rankin is the first person to speak publicly about his experience dealing with Palasty.

Rankin says his battle with Palasty and Virtical’s Eden Australasia, the entity set up to buy the hotel, has cost him hundreds of thousands of dollars in legal fees and resulted in years of anxiety and stress, after Palasty took Rankin’s building company to the NSW Supreme Court, demanding $150,000 for works allegedly not completed under the sales contract.

The case was dismissed last month.

Rankin said the drawn-out saga had “ruined his life” and contributed to health problems suffered by his wife Karen, a co-director of his building company Karneil.

Rankin said he met Palasty when he wandered across the road from the pub and into the sales office of the luxury development “to have a look”.

Palasty, then Virtical senior consultant, showed some interest in buying the Hotel Australasia, which Rankin was readying for a sale as he prepared for retirement.

“John wanted to operate two restaurants on Imlay Street, which sounded like a good idea,” Mr Rankin said.

“Three offers were made and John had the best price [of $1.65 million].”

Contracts were exchanged in September 2021, with settlement occurring six months later, in March 2022. During the period between exchange and settlement, Palasty started working at the hotel while Rankin completed his renovations.

During this period, Rankin said he witnessed Palasty fly into rages and outbursts.

“When we settled I was relieved because I thought I was free of him,” Rankin said.

Less than two months later, Rankin said he was “flabbergasted” when Palasty demanded he pay him $150,000 for works he alleged had not been completed.

“[Eden Australasia] also sued my wife, claiming she owed him money in relation to the Hotel Australasia. As a result, she had a nervous breakdown,” he said.

Karen Rankin was later diagnosed with leukemia.

The lawsuit brought by Eden Australasia was heard in the NSW Supreme Court at the end of April. On August 29, Judge Susanne Cole dismissed the claim.

In her ruling, Cole noted the relationship between Palasty and Rankin deteriorated after the March settlement of the Hotel Australasia and “largely over the difference of views as to what work Karneil was liable to perform and pay for under the contract”.

Judge Cole found Rankin had completed the work as specified in the contract.

Rankin claims Palasty “laughed and smiled” as he sat in court during the hearing. “It looked like he was enjoying it. He did not care who he hurt.”

Rearguard action

Last week, the Financial Review revealed Virtical’s main financier Bond Finance had appointed administrators to Hotel Australasia, after appointing administrators to the group’s two trophy assets, The Republic Hotel in Sydney and The Adelphi Hotel in Melbourne.

Eden Australasia – the Virtical company that sued Rankin’s company – on Wednesday lodged a notice of intention to appeal the court’s decision after the Financial Review sent Virtical’s lawyers questions about the court loss.

However, Eden Australasia went into administration on Tuesday. Palasty no longer has control of the company, including the right to decide whether to launch legal action on its behalf.

BRI Ferrier, which controls Eden Australasia, confirmed it did not lodge the notice with the court. The firm that lodged the paperwork, Kekatos Lawyers, did not respond to requests for comment.

Back in Eden, Rankin and the town’s residents have a daily reminder of Palasty’s impact on the town – the site of the former Fisherman’s Club is a dusty, vacant lot behind wire fencing,

Rankin said Palasty had “ripped the heart and soul out of Eden”.

“Forty people put down deposits for apartments in Sapphire of Eden and sold their homes in the township. But they never went ahead with the units and now these people are homeless.”

In written responses sent via his lawyers, Palasty denied all assertions made by Rankin. He said while all sales contracts for the Sapphire of Eden had been terminated and deposits returned, the project was “ongoing”.