27/01/2004 - 21:00

Gale’s creditors count costs

27/01/2004 - 21:00

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SWIFTEL Ltd CEO Chris Gale will have to shell out $100,000 in the next few weeks as part of a deal with the creditors of his private business interests, who have been trying to salvage about $1.2 million in debts.

Gale’s creditors count costs

SWIFTEL Ltd CEO Chris Gale will have to shell out $100,000 in the next few weeks as part of a deal with the creditors of his private business interests, who have been trying to salvage about $1.2 million in debts.

The payment is part of a deed of company arrangement Mr Gale agreed to late last year to partly repay creditors of his data and voice cabling company, Wingside Nominees Pty Ltd, which went into administration shortly after its operations were sold in June.

Under the deal, Mr Gale will pay creditors a total of $350,000 by February next year.

Deed administrator Gary Anderson said the amount represented a pay-out of about 25 cents in the dollar to unsecured creditors.

It is the second time a company linked to Mr Gale has left creditors in the lurch – with at least two creditors contacted by WA Business News having lost money on both occasions.

Mr Gale, a resident of up-market suburb Peppermint Grove, said he was endeavouring to repay creditors of Wingside, which had performed badly in recent years because it had been put under management so he could devote more time to Swiftel.

It was a claim disputed by angry creditors who said Mr Gale was clearly the decision maker at Wingside until the end.

Mr Gale said attempts to sell the business at a price that would have paid out creditors had failed.

He told WA Business News that: he had personally waived $500,000 owed to him by Wingside; had put in additional funds to pay out the secured creditor, StateWest Credit Society; and was also personally paying off the debt to the biggest single unsecured creditor, the Australian Tax Office, which is owed around $250,000.

“I will ensure the creditors will be looked after,” said Mr Gale, who is also listed as a director of the Starlight Children’s Foundation Australia.

The Swiftel chief’s ability to make the repayments required under the deed has been significantly buoyed by the market performance of the listed telco he manages, with its share price rising from 4 cents a share in mid July to trade around 12 cents at current prices.

At 12 cents each, his 9.2 million shares in Swiftel are worth $1.1 million (there are also almost 7 million options, mostly trading slightly above 5 cents). But Mr Gale has cashed out significantly in recent months, selling almost half his shares and options to raise $960,000 in late November, just after creditors voted to go ahead with the deed.

Related party disclosures of the past three years show Wingside was contracted by Swiftel’s subsidiary, Swiftel Communications Pty Ltd, to conduct a range of work, such as cabling in the Perth CBD, for which it has been paid a total of almost $2.2 million.

Swiftel Communications was 19.9 per cent owned by interests asso-ciated with Mr Gale until September 7 2001, when Swiftel Ltd, having gained shareholder approval, purchased the minority stake held by its CEO in return for 5 million shares and 5 million 10-cent options.

Wingside traded as KLM Group (WA) until June 6 2003, when Mr Gale’s company sold the business operations to Melbourne-based listed IT company KLM Group Ltd for $400,000 worth of cash and shares.

The joint managing directors of KLM Group Ltd, Greg and Peter Jinks, have known Mr Gale for decades and it is the second time they have bought the operations of a struggling Perth electrical contracting business from Mr Gale.

Both the listed companies, KLM and Swiftel, also share a common director in Saliba Sassine, who ended up on the KLM board when it recently bought technology company Eftnet.

Mr Anderson, who was appointed as Wingside’s administrator in August, told WA Business News that Mr Gale had been trying to sell the business for at least two years.

The administrator said that a deal with a US-based group for a sale worth around $2 million had collapsed following the New York terrorist attacks of September 11 2001. Another deal also fell over in the intervening period.

“Gale had been trying to sell this business for a number of years,” Mr Anderson said.

“As time went by the people to sell the business to and the prices got less and less.”

He said the payment by KLM Group Ltd ($232,000 plus 250,000 ordinary shares and 500,000 December 2005 options – a total value of $402,000 in KLM’s books) was used to discharge the secured creditor, StateWest Credit Society.

He said Mr Gale also put in about $100,000 to pay out StateWest and, in addition, had waived any claim for a dividend over $500,000 the Swiftel chief claimed he was owed by Wingside.

But Mr Gale’s own losses and agreement to partially repay unsecured creditors has found little sympathy among creditors contacted by WA Business News.

David Proctor, of Jandakot-based Diversified Services Pty Ltd, described the $189,000 owed by Wingside as a major setback after venturing from solid government contracts for the first time.

 

Mr Proctor said most of the money owed was related to work on airforce facilities in Derby.

“This project was one of the first through a private company, it was a huge lesson,” Mr Proctor said.

Electrical Group Training general manager Steve Swan said the $47,000 owed by Wingside was the second time his company, which specialises in hiring out  apprentices, had lost money to a company linked to Mr Gale.

“The terms of his settlement through the DOCA is 18 months down the track [from the administrator’s appointment] and we believe we will be lucky to see anything out of that,” Mr Swan said.

Structural cabling components supplier Anixter Australia finance manager, Rod Northridge, is another who confirmed his business has been stung twice by businesses related to Mr Gale – adding to more than $70,000 between the two.

However, Mr Northridge remained confident he would be repaid, claiming Mr Gale provided personal guarantees for the $40,491 debt owed by Wingside.

“I only do business with him with a guarantee,” Mr Northridge said.

The previous business failure relates to a company called Stadenet Pty Ltd, which traded as Interior Electrics until it failed financially in April 1996, leaving a shortfall of assets to liabilities of around $1.4 million, according to the report as to affairs lodged by receiver and manager, Barry Honey.

When Stadenet collapsed it had a complex web of transactions with other companies connected to Mr Gale, including a majority stake in Telesys Communications Pty Ltd, which was put into liquidation in the same year.

Just as complicated is what happened to the business name Interior Electrics at or around the time of Stadenet’s failure.

ASIC records show that a company named Skycar Pty Ltd took ownership of Interior Electrics on March 12 1996, just a month before Stadenet was put in the hands of administrators.

But, at the time, Skycar was actually called KLM Electrical Contracting (WA) Pty Ltd and the directors of Skycar (then KLM Electrical Contracting (WA) Pty Ltd) were Gregory and Peter Jinks, the current joint managing directors and founders of KLM Group Ltd, which bought the operations of Wingside in June last year.

Peter Jinks confirmed to WA Business News that Mr Gale was a friend of his and his brother’s from early days in their careers when all were electricians in their home state of Victoria.

Mr Jinks said Mr Gale moved to WA and started a business but many years later got into financial trouble. Their business, then successful but unlisted, bought him out and kept him as manager, changing the trading name in the meantime to reflect KLM’s new presence in WA.

He said things did not work as planned in WA, partly because creditors from the previous business remained unpaid, and eventually Mr Gale bought them out of the Perth-based business.

“Chris’ problem is he spends more than he earns,” Mr Jinks said.

Despite their rocky business experience, Mr Jinks said the pair remained in touch with Mr Gale, who even introduced the brothers to Montagu Stockbrokers, which advised them on the listing of the KLM Group through a reverse takeover by Eftnet.

But Mr Gale also retained control of the KLM name in WA, which the group eventually decided it wanted back to ensure they were an authentic national organisation.

“If he had not had the name KLM I would have had nothing to do with him [commercially] again,” Mr Jinks said.

 

“Gale had been trying to sell this business for a number of years. As time went by the people to sell the business to and the prices got less and less.”

-         Gary Anderson

 

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