Picking over the carcasses of failed companies and seeking to bring them back to life is something of a specialty in the Western Australian corporate scene, where the appetite for risk and a ready supply of listed shells have spawned a unique industry.
Picking over the carcasses of failed companies and seeking to bring them back to life is something of a specialty in the Western Australian corporate scene, where the appetite for risk and a ready supply of listed shells have spawned a unique industry.
Some see this practice as a dark art, designed to create windfall gains from the misery of previous failure.
Others see it differently, citing success stories that show practitioners in this particularly Perth-centric field are simply breathing new life into company shells, giving hope to shareholders who would otherwise have to totally write-off their investment.
Long-serving insolvency expert Brian McMaster from KordaMentha is one who has seen the whole gamut of this small and tightly knit sector.
"There is pretty much a formula to it," Mr McMaster said.
He said a typical recapitalisation started with a payout to settle existing creditors and put some funds in the bank, as well as a big consolidation of existing shareholders back to 4 per cent or so of the company.
About 300 million new shares are issued, usually around 1 cent but sometimes higher and often with tranches that are just a fraction of a cent.
When the shares relist, they need only gain one cent for those who got in at recapitalisation to make a significant gain, often having extracted fees along the way.
"There is a reasonable rhythm to the ways professional recapitalisation people do it," Mr McMaster said.
But he adds that they often offer the administrator the most cost-effective path to recouping something for creditors, and even existing shareholders are left with a tradeable security.
With more than 200 companies having listed in WA during the past two years, recapitalisations represent a small proportion of what takes place here.
But the sector has thrived to the point where there are several advisers and law firms that are known to specialise in the field.
At an advisory level, Ascent Capital Pty Ltd is considered the market leader and the company that really defined the sector in the first place. Started by David Steinepreis, his brother Gary, and Hugh Warner, the company has been most recently consumed with the revival of Croesus Mining NL.
Mr Warner has since left and has his own business, Anglo Pacific Equity Parters Pty Ltd, which has been very low key but appears to have digital media failure TVN Corporation Ltd as a current project.
After Ascent, the key players are Albion Capital Partners, established by Tony Grist and Gavin Rezos, and Trident Capital Pty Ltd, which has Paul Price, Adam Sierakowski and Andrew Parker on its board.
Another regular player is John Hannaford's Ventnor Capital Pty Ltd, while further names linked to the sector are Faldi Ismail's Romfal Corporate Pty Ltd and Pitcher & Partners' Monster Capital Pty Ltd.
Former insolvency practitioner Oren Zohar was among the recent founders of Primewest Capital, which has already dabbled in this space with the restructuring of Australian Waterwise Solutions Ltd, now called ADG Global Supply Ltd.
McKenzie Moncrieff partner Rob McKenzie said WA's unique corporate world lent itself to this specialist sector.
Mr McKenzie points to the large number of listed companies in WA, around a third of the nation's total, many of which are very small and at the speculative end of the market, especially in mining.
The nature of this meant that company failures occurred often, but also that there was a ready supply of new projects to relaunch them, not to mention a healthy appetite among investors for risk.
Mr McKenzie noted that the ability to issue shares at one cent was attractive to many promoters, who generally aren't escrowed, due to the potentially large gains from relisting, although the regulators are reviewing the current rules that force IPOs to issue shares at 20 cents, effectively giving recapitalisations the lion's share of the penny dreadful market.
The existing shareholder base was also an attraction, often providing a good spread.
"Some have a good institutional share base," Mr McKenzie said.
"If you can make them some money and do well, those people stick with you and follow you."
These factors often outweighed the alternative of going to market with an IPO.
RECAPITALISATIONS
Advisers: Ascent, Albion, Trident, Ventnor, Anglo Pacific
Lawyers - Steinepreis Paganin, Price Sierakowski, McKenzie Moncrieff
Past glories: International Mineral Resources became Amcom Telcommunications, Valiant Resources became Consolidated Minerals
Recent restructures: Comdek, Croesus, Gleneagle Gold, Western Metals
Upcoming: White Sands Petroleum, TVN Corporation, Evans & Tate Wines
A TYPICAL RESTRUCTURE
Creditors settled, about $1.2m in cash
Around 300m new shares issued at 1 cent or less
Original shareholders end up with about 4%
Retains mining tenement or other remnant asset of limited resale value
