Diploma holds off ASIC action

Diploma Group has been granted a two-week lifeline to finalise its plan to provide a return to creditors of the collapsed building and development firm.

The Australian Securities and Investments Commission had applied to the Federal Court to appoint liquidators to 20 Diploma Group-related entities, after administrators were appointed to the company in December last year with debts totalling more than $36 million.

This morning, Justice McKerracher of the Federal Court made an order to appoint Grant Thornton’s David Hodgson and Andrew Hewitt as joint and several provisional liquidators of the 20 companies, giving the liquidators 45 days to identify assets and debts, determine whether the companies were solvent and any if there would be any return to creditors if the entities were wound up.

However, Justice McKerracher’s judgement also provided a two-week lifeline for Diploma to finalise a Deed of Company Arrangement, with the orders stayed until May 25.

Diploma has until May 24 to apply to vary or vacate those orders.

“The judge has essentially given us an adjournment by the fact that the companies are not in liquidation as of today,” Diploma Group managing director Nick Di Latte told Business News.

“But they may very well be in a couple of weeks’ time if we’re not able to bed down some components of our DOCA, so that’s what we’re working on.”

Mr Di Latte said he remained confident that a DOCA, and not liquidation, would be the only way creditors would get any return.

“The court said today that there are components of our DOCA that are in the best interests of creditors, and that’s why he’s given us more time to try and get that DOCA proposal across the line,’’ he said.

“Reading between the lines there, he wants the creditors to be able to vote on this DOCA proposal at some point.”

While the exact parameters of the DOCA are still being finalised, it would involve a debt to equity swap, with the Di Latte Family proposing to transfer 50 per cent of its shareholding in the ASX-listed entity Diploma Group to creditors.

“What we are trying to do through my family transferring their shares in the listed company to creditors is create a company that is going to be, over time, more valuable to the creditors from a shareholding perspective, than liquidation,” Mr Di Latte said.

“I think it’s a better scenario and I’m pretty confident, if we can get to the second creditors meeting and actually have a vote on it, that it will get approved.”

Also key to the arrangement would be Diploma Group acting as development manager for the $160 million Chemlabs development in East Perth, part of the Metropolitan Redevelopment Authority’s Riverside precinct.

Diploma Group was originally named as the MRA’s preferred partner for Chemlabs in February 2015, with the development proposed to have been built in joint venture with John Italiano.

Mr Di Latte said Mr Italiano had exercised an option yesterday to acquire Diploma Group’s interest in the Chemlabs project, an option that was not exercised at no cost, contrary to media reports.

“Our JV partner, under terms of the agreement, had funded over 90 per cent of the costs to date on that project, which were several million dollars,” Mr Di Latte said.

“They were obviously very concerned with what was happening, and that their money was at risk moreso than ours, that’s why they’ve acted the way they have and moved forward.

“But in exchange for that, a Diploma entity has signed a contract with the Chemlabs developer to carry out development management services for the project, which will make up a pretty sizeable part of our DOCA proposal, with up to a $6 million fee over the life of the project.”

If creditors vote to approve the DOCA, Mr Di Latte said construction of the first stage of the Chemlabs project, which would comprise a hotel and a supermarket, could begin as early as September or October.

A second stage, comprising a 226-dwelling apartment tower, would depend on market conditions, Mr Di Latte said.

Ultimately, while the DOCA was designed to re-establish Diploma Group as a property developer or project management firm, Mr Di Latte acknowledged there would be a significant challenge ahead in rebuilding the reputation of the company.

However, Mr Di Latte said the new entity would not be involved in construction, while he was also not in line for a managerial or directorial role.

“I’m not proposing to be a director of the entity and it’s probably that new directors and a new board may look at the image and the name and may look to change a few things, so I think it will be a completely different organisation,” he said.

“At this stage I’m not certain if I would be involved, that would be up to any potential board to determine in time.

“Obviously I have a fair bit of knowledge about the Chemlabs project, having been involved from day one, but again, that would be up to the new board of directors to determine.”

Mr Di Latte also rebutted media reports over the past week that senior executives at Diploma, including himself, had been overpaid, and that entitlements to Di Latte family members had been prioritised over other employees who were also made redundant or terminated.

“My family, as the largest shareholder of Diploma, has continually supported Diploma by lending to the Diploma Group approximately $8 million between 2010 and 2015 to assist Diploma in undertaking its development projects,” Mr Di Latte said.

“What has also not been reported is that my family provided further cash funding to Diploma, of nearly $3 million between July 2016 and December 2016, and this has not been repaid.”