Listed construction contractor RCR Tomlinson (RCR) went into administration late last year. Liquidators were appointed in March and in April shareholders were advised that their shares were worthless.
The fall of RCR mirrors the earlier failure of the Forge Group in 2014. While RCR may be finished for all trading purposes, based on the history of Forge, there is a long road ahead.
Parallels between RCR and Forge
- Both Forge and RCR were large listed construction companies with origins in WA that each underwent a period of growth prior to a sudden downfall.
- In the lead-up to the appointment of administrators, each company identified cost overruns associated with two particular projects.
- The problem projects resulted in each company suspending trading of their shares on the ASX to allow time to investigate the problems.
- Each resumed trading after obtaining funding to cover the cost overruns on the problem projects.
- All problem projects were all power projects constructed under EPC (engineering, procurement and construction) contracts.
What lies ahead for RCR?
The similarities between RCR and Forge mean that the post-insolvency activities of Forge indicate what lies ahead for RCR. This being:
- Class actions. Litigation funder IMF Bentham funded various legal proceedings relating to the collapse of Forge. IMF have already indicated that it will fund a class action on behalf of shareholders on a "no win – no pay" basis. The claim will allege breaches of continuous disclosure obligations in mid-2018, when RCR obtained additional funding.
- Claims by subcontractors who worked for RCR. Around 80% of work awarded to main contractors in Australia (like RCR) is subcontracted. Many subcontractors will be out of pocket. Because subcontractors are likely to be unsecured creditors they will need to look for creative ways to recover their losses – as an example, one of Forge's subcontractors considered litigation against Forge's lenders on the basis of the content of Forge's ASX announcements.
- Claims between secured creditors and equipment lessors. Contractors like RCR often lease expensive equipment, and despite the lessons learned from Forge's collapse, it is likely that lessors of equipment will not have registered their ownership interest. The lesson learned being that Forge leased turbines from GE worth around $50 million but GE never registered its ownership interest on the Personal Property Security Register (PPSR). After a series of disputes, the secured creditors triumphed. Their registered 'security interest' trumped the fact that GE (merely) owned the turbines.
- Disputes between secured creditors and the Federal Government. When a company goes insolvent, the Federal Employment Guarantee fund can help to provide funds to employees to cover lost wages. In Forge's case, secured creditors recovered around $50 million from the ATO after it went into liquidation. The Department of Employment, who made payment to Forge's employees, sought to recover from the secured creditors amounts it paid to Forge's employees. It was unsuccessful.
- Public examinations. When a company goes into liquidation, anyone who has had dealings with the insolvent company can be questioned in court. Forge's liquidators and the receivers and managers of Forge spent many days in court cross-examining senior executives of companies who had dealings with Forge. Public examinations are a wide-ranging investigative procedure, and the process has been described as court-ordered "fishing expedition".
The above disputes and many more, have been part of the wind-up of Forge. Forge's creditors placed Forge into liquidation in March 2014, though the liquidation is still not yet finished. We can expect RCR to follow a similar path.
Matthew Blycha, HFW
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