Chemeq to repay $60m after Supreme Court loss

Rockingham-based animal pharmaceutical products manufacturer Chemeq Ltd has been ordered to repay $60 million to US bonds trader Stark Trading and Harmony Capital Partners after losing a Supreme Court appeal today.

The court has granted Chemeq a stay of execution until 4.00 pm WDST Monday 5 February 2007, enabling Chemeq to review the decision and consider its position.

Stark and Harmony had issued convertible bonds worth $50 million and $10 million respectively with the company, with one condition of the contract being that Chemeq achieve total gross revenue of at least $4 million for the year ended 30 June 2006.

The company's income statement for the 2005-06 financial year shows a revenue of $4.1 million, however the company's independent audit report identified uncertainty about the validity of a $1.5 million contract with Chemeq's South African distributor Inviro.

Inviro refused to pay the company, saying the terms of a sales agreement between the two had been altered. While Chemeq was pursuing legal action against Inviro, it argued in the Supreme Court it could book the $1.5 million as revenue since product delivery was made and accepted by Inviro at the time.

Stark and Harmony disagreed, seeking immediate repayment of the bonds on the grounds Chemeq had violated its revenue covenant.

Shares in Chemeq were trading at 21.5 cents when the company entered into a trading halt yesterday, having jumped 22 per cent the previous day.

A quarterly report, released December 31 2006, put the company's cash at bank at $13.7 million with creditors, accruals and retentions of $1.3 million.

The full text of a company announcement is pasted below

Justice Templeman in the Supreme Court today found that Chemeq Ltd has failed to meet the terms of the final milestone covenant set out in the Convertible Bonds Deed Poll. This covenant required Chemeq to achieve gross revenue from all sources of at least $4. million for the year ended 30 June 2006.

Pursuant to the Convertible Bonds Deed Poll, the Notices of Redemption previously issued by Stark Trading and its associates and Harmony Capital Partners require Chemeq to repay the $60 million face value of the convertible bonds forthwith.

The court has granted Chemeq a stay of execution until 4.00 pm WDST Monday 5 February 2007, this will enable Chemeq to review Justice Templeman's decision and considering its position.

A further announcement will be made to update shareholders as soon as possible. The trading halt over Chemeq's securities will continue in the interim.