Creditors’ trusts help corporate restructuring

Big corporate collapses such as Sons of Gwalia, EG Green Group, Henry Walker Eltin and most recently Westpoint Corporation have provided plenty of work for insolvency lawyers, but a much smaller deal has been hailed as the best restructuring of 2005.

Agribusiness investment company Australian Growth went into administration in June 2003, less than 12 months after listing on the Australian Stock Exchange.

Two years later, after a tortuous restructuring, the company relisted on the ASX under a new name, RuralAus Investments.

Clayton Utz partners Rob McKenzie and Cameron Belyea worked with insolvency firm PPB on the restructure of the business, which had invested $30 million on behalf of 1,500 investors in four managed investment schemes and one prescribed interest scheme.

The restructuring, into a new MIS structure, was judged the top insolvency deal of 2005 at the recent ALB Australasian Legal Awards.

The restructuring was followed by a recapitalisation of the company, led by a group of investors that included former federal assistant treasurer George Gear, PKF managing partner Ian Olson and Bell Potter head of corporate Peter Wallace, all who now sit on the board of RuralAus.

Deacons acted as legal adviser to the new investors.

Mr McKenzie said the Australian Growth deal was an example of the benefits of using a creditors’ trust, a technique that has become widely accepted in Western Australia but is rarely used in other states.

The deal added to a lengthy list of successful restructurings handled by Mr McKenzie, including Paladin Resources (now a soaring uranium stock), Anaconda Nickel (now Minara Resources) and Kingstream Steel (now Midwest Corporation).

Other major insolvency matters in WA have kept many lawyers busy. For instance, the administrator of failed mining contractor Henry Walker Eltin appointed Clayton Utz to advise on operational matters and Allens Arthur Robinson to advise on the sale of its core contracting business.

Allens had a mergers and acquisitions team led by Andrew Pascoe, an insolvency team invol-ving Kim Reid and a construction team led by Stephen McComish working on the successful sale.

In the case of failed beef processor EG Green Group, Deacons acted for the administrator while Freehills partners David John and David Grey acted for the purchaser of the business.

Freehills continued to act for the administrator of Sons of Gwalia, with insolvency partner Konrad de Kerloy and corporate partner Justin Mannolini both active.

The collapse of Norm Carey’s property group Westpoint has led to a flurry of appointments.

This includes Mr McKenzie, who has been appointed to advise PPB partner Simon Read on the liquidation of two of the group’s peak companies.

The expected Westpoint liquidation stands in contrast to many of the restructurings undertaken by Mr McKenzie.

He said much of the success was down to the use of creditors’ trusts, which are interposed between a failed company and its creditors.

The Australian Securities & Investments Commission has previously expressed concern about creditors’ trusts but Mr McKenzie said its attitude had swung around.

“The reason we have been able to pioneer and develop this technique is that in WA we have a unique relationship with the ASX and ASIC,” he said.

This was illustrated by the Australian Growth restructuring, which Mr McKenzie said was possible only because ASIC and ASX granted various concessions.

For instance, the listed parent entity was able to continue as a fund raising vehicle, its financial services licence was extended and some regulations relevant to MIS projects were waived. This flexibility helped with the restructuring, which had many complexities.

Poor documentation did not provide for a method of reconstructing the schemes.

The prescribed interest scheme and four MIS schemes were each subject to different and changing legal requirements, adding a further challenge.

Also, some of the schemes were more successful than others, meaning investors’ interests were different.

Mr McKenzie said he had found increased interest on the east costs in the use of creditors’ trusts based on their success in WA.