Forge Group employees could be waiting up to six months to access $50 million owed to them and business creditors could be facing an even longer wait, according to Ferrier Hodgson.
Forge Group employees could be waiting up to six months to access $50 million owed to them, and business creditors could be facing an even longer wait, according to Ferrier Hodgson.
Ferrier Hodgson, which has been acting as the administrator of collapsed engineering company Forge, was named the liquidator today as creditors voted to wind-up the company.
About 120 people attended the second creditors meeting in Perth, where Ferrier Hodgson advised that the company’s 1,600 former employees should start seeking government assistance.
Partner Martin Jones said Ferrier Hodgson estimated employees were owed about $50 million and claims would take up to six months to be processed, but possibly longer.
“I caution expectations that this is a process of 1,600 claims, not 16 or 160, and that’s going to take some resources and some logistics to work their way through,” Mr Jones said.
He said many of the meeting attendees, especially employees, had displayed frustration and wanted to know what consequences Forge directors may face.
“I understand the employees do have an emotional connection ... and they see that executives and boards are remunerated and incentivised and then you see the corporate failure (so) surely there must be some contrition or responsibility, but it is something that we’ve been alerted to and in our normal manner of enquiry we’ll determine whether there has been (any breaches),” Mr Jones said.
He said initial estimates of $800 million owed were likely to rise as investigations continued, but said he was unable to say how high the claims might come to.
Ferrier Hodgson would now focus on investigating whether there were any breaches by directors and retrieving funds that could be paid to creditors.
“There are a bunch of enquiries that as liquidators we’ll now pursue and they might give rise to claims separately from the assets of the company . We’ll be focusing on those and seeing what avenues of compensation orders or recoveries that we can make from there,” Mr Jones said.
He said Ferrier Hodgson would undertake more forensic work to more accurately date when Forge began trading while insolvent, which initial enquiries have revealed may have been as early as three months before the company went into voluntary administration.
“Arguably the directors will say that it was insolvent on the date they made (the administration) decision and there are defences available to them and we’ll be working our way through that,” Mr Jones said.
He said Ferrier Hodgson had not yet ascertained a value of assets that could be realised and requests for this from Forge directors were likely to result in another request for an extension.
“Some of the responses were that ‘that’s a complex question that we haven’t had sufficient access to the information available to be able to provide you with a detailed response’,” Mr Jones said.
One creditor told Business News his contract with Forge represented the vast majority of his business’s work and he was now owed $1.2 million, which could bankrupt his 40-year-old company.
Mr Jones said Ferrier Hodgson was “not oblivious” to the effect of Forge’s collapse on a number of creditors, but that he did not have a clear estimate as to how many companies faced a real threat of going under as a result of debt owed by Forge or lost work.
WA Skills Training owner and director Bob Butson said Forge’s collapse had caused it to lay off eight staff and delay plans to build a $5 million training centre in Welshpool.
While WA Skills Training has written off Forge’s debt to it of $183,000, Mr Butson said the real concern had had been the loss of its multi-million contract with Forge to provide training for Roy Hill.
“We were Forge’s training company. Where Forge went, we went,” Mr Butson said.
“I now have a whole training centre in Perth that I can’t build because they’ve taken my whole cash flow away, so it’s put us right onto the back foot.
“It’s not just that dollar, it’s the negotiations we did for the ongoing contract for Roy Hill, how we budgeted everything around them winning the contract.”
Mr Butson said WA Skills Training was in the process of negotiating with Samsung, which has taken over Forge’s contract on Roy Hill, to work as its training partner and was hopeful it would sign an agreement in the next few weeks.
“We’re hopeful to pick up some but I can’t see us picking everything that we would have got with Forge,” he said.
While he had been aware of industry talk regarding Forge’s troubles, Mr Butson said he hadn't expected its collapse.
“We took the ANZ’s guarantee that they were going to back Forge as our cornerstone of why we kept going with Forge,” he said.
“We actually had a very good relationship with them.”
Mr Butson said while in hindsight it would have sought to minimise its exposure to Forge, he remained confident WA Skills Training would survive the blow.
“My company is nowhere near like Forge in trouble. If my classrooms had already been built it would have just been a bump in the road,” he said.
“It’s slowed down my expansion project, it hasn’t actually put my project into any danger.”
Ferrier Hodgson’s nomination as liquidator comes one week after it released a report to creditors with initial discoveries into why the company failed.
It attributed Forge’s demise in part to the acquisition of CTEC, which exposed Forge to greater contractual risks, reliance on debt funding for acquisitions and working capital, and the setting of low margins on contracts.
Ferrier Hodgson also blamed a downturn in the mining sector, a failure to implement sufficient risk management, and cost escalations on the Diamantina power station and West Angelas power station.
In its report Forge revealed Clough’s divestment of its 31 per cent shareholding in Forge followed it raising concerns about Forge acquiring power company CTEC.
Clough’s $187 million sale of its stake in March 2013 was examined by Ferrier Hodgson and found to not have breached any laws, but it said at the time that a liquidator should consider the transaction further.
The report also revealed as many as 18 groups showed interest in bailing out Forge Group in the few months leading up to its collapse.
Two serious offers were entertained by Forge, with one proposal received six days before it went into administration.
Euroz Securities presented Forge with the first deal from an unnamed group offering to acquire Forge early in December 2013, after Forge engaged Euroz Securities as its corporate advisor.
The group indicated it was willing to pay a 20 per cent premium on the volume weighted average price, which during December ranged between about 50 and 60 cents, before spiking over $1.70 at the end of the month.
Euroz recommended the offer to Forge and due diligence was initiated until on December 20 when Euroz advised Forge that the group’s non-binding indicative proposal contained terms that Forge’s board wouldn’t like.
It appears negotiations stalled over the offer price, exclusivity and an offer price to financer ANZ Banking Group with respect to certain warrants that it held.
On February 5 Forge received another offer from an unnamed group to provide capital in exchange for implementing changes to the business, including de-risking it and calling for an equity raising.
The unknown group proposed to invest $50 million in new capital as senior secured convertible notes and that Forge embark on an equity raising of $40 million, with the money to be spent reducing ANZ’s exposure and paying the ATO.
The group also proposed that ANZ convert $50 million of its senior debt into convertible notes and that Forge divest its North American business and use those funds to further reduce ANZ’s exposure.
Ferrier Hodgson said it had not yet determined how Forge’s board had responded to the final offer, and the deal was worth further investigation to determine whether it could be a defence to insolvent trading claims.
