Forge may have been trading while insolvent

Administrators of Forge Group say the failed engineering and construction company may have been insolvent for three months before it collapsed, but that investigations into whether directors had breached their duties were still continuing.

Administrators Ferrier Hodgson’s preliminary findings show Forge’s board did not believe it was insolvent until February when it went into administration, however.

Ferrier Hodgson said the Forge board attempted to undertake a series of restructuring initiatives and considered the group’s solvency (or otherwise) each time. On each occasion the board believed the business to be solvent, according to the administrators.

“Based on our preliminary investigations to date, we are of the opinion that the group may have been insolvent as early as November 2013,” Ferrier Hodgson said in its latest letter to creditors. 

“Our investigations with respect to whether there have been any breaches of directors’ duties are continuing. Accordingly, we are not yet in a position to confirm whether the directors have breached their duties.”

Ferrier Hodgson warned the exact date the company became insolvent was yet to be determined, and further investigation was required.

It recommended Forge be wound up and placed into liquidation.

Forge is believed to have total debts of about $800 million, with former financier ANZ Banking Group owed about $290 million.

Several causes have been attributed for Forge’s demise including 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.

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 were particularly damaging, according to Ferrier Hodgson.

It said Forge’s cost escalations were due to inferior or underdeveloped preliminary engineering and front-end design work.

Creditors will meet for the second time on March 18 in Perth to cast their vote on how the administration should proceed.