Unravelling the Palandri riddle a lengthy process

It’s almost a scene from a one of those East End gangster movies.

Everyone has a gun, and they are all pointing it at someone else in the room, screaming and shouting that they will pull the trigger, but none knows for sure who the enemy really is.

As farcical as it may sound, to the outsider, the collapse of Palandri Wine Group appears this way.

Everyone has a gun to their head, while holding their weapon at someone else’s.

For administrator Gary Doran from Deloitte, who was appointed by the directors in February, the $500,000 a month it was costing just to keep the wine assets operating was the motivation he needed to get a deal done quickly.

For the buyer, Chinese company Global Wine Holdings Pty Ltd, there was the chance of burning a considerable investment previously made in Palandri.

Palandri executive chairman Darrel Jarvis faced the loss of everything, plus the potential for legal action if he didn’t throw his lot in with Global Wine and its owner Xibo Ma.

But Mr Jarvis was also viewed as the only person who could get Mr Xibo to commit.

Unsecured creditors, and possibly vineyard investors, face the choice they usually get in this position – accepting a small settlement or digging deep to fund the liquidator in a chase for assets that may not exist.

If they vote for a deed of company arrangement, they will share $1 million, a fraction of what they are owed, and effectively end any potential pursuit of the directors beyond what they have agreed to contribute as part of the deal.

It is yet to be stated by Mr Doran and his colleagues that there is a case against the directors.

However, he does make it clear that the business is in a shocking state – a costly business model whose burdensome structure has been further complicated by poor record keeping.

Two and half months into the job and the Deloitte team still can’t determine if one of the managed investment schemes has been properly wound up, or be entirely sure which investors have leases over portions of five vineyards.

“If you look at where they got to when I was appointed it would never have worked,” Mr Doran said.

The administrators also still don’t know how much money was ploughed into Palandri through its MIS schemes, equity raisings like its short-lived London listing or to secured creditors.

The likely total is somewhere between $100 million and $150 million, over almost 10 years, to build a business that had net assets of $48.7 million according to its own accounts as of June 30 last year.

But the collapse has yielded much less. With assets of about $30 million, approximately what Mr Doran expects to raise from the sale of the wine assets and the vineyards, if the deed gets signed off, likely to be offset against secured creditors, leaving a swag of unsecured creditors likely to get little more than a few cents in the dollar.

With Mr Jarvis and other directors involved in the Global Wine purchase there have been calls from some in the industry that they are not just getting off scot-free but they also had an unfair advantage in the bidding to buy the Palandri assets because only they truly knew what was going on in the company.

Former South Australian winery owner Andrew Garrett, whose own business collapsed earlier this decade, was one bidder who has complained bitterly about the process and is threatening legal action.

However, Mr Doran was unapologetic about the speed of the transaction or the result, saying he was not convinced about Mr Garrett’s financial strength and had to move on with the process due to the cost of keeping the business alive.

Peter Fogarty, the owner of Jarrahdale’s Millbrook Winery and Deep Woods Estate in Margaret River, ended up being the underbidder in the process.

Mr Fogarty, who was successfully involved in the purchase late last year of the core wine brands of the collapsed Evans & Tate Ltd, was more circumspect about the Palandri sale deal.

He said the speed of the sale was understandable, though his team realised that they couldn’t win a bidding war against the eventual winners.

“It was a mess and they had to get a solution very quickly,” said Mr Fogarty, who may well have been one of the few participants in this drama without a financial or legal gun to his head.

“We were not going to get into a contest with someone who has been involved in the process. We walked away.”