Gunns' liquidator talks tough?

The Mercury reported here that Gunns’ liquidator, PPB Advisory,” has summonsed auditors Leigh Franklin and David Lumley of KPMG’s Hobart office to a public examination under the Corporations Act in the Supreme Court of Victoria early next year.”

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“............PPB Advisory liquidator Daniel Bryant wants to examine KPMG about its review of Gunns’ 2008 financial statements, the audit of Auspine to June 2009 and all financial models relating to the audits of Gunns group’s financial statements between June 30, 2009, and June 30, 2011.

Liquidators have asked for documents about the $2.5 billion Bell Bay pulp mill, land valuations, biological assets and receivables in relation to the managed investment schemes.

The 2011 documents sought include the Bell Bay pulp mill project financial model dated June 2011, pulp mill cost summary dated May 31 and the pulp mill capitalised cost summary.

A public examination is an investigative process used by liquidators to search for assets, inquire into potential claims, discover any offences and provide some sense of resolution to creditors.”

At issue is trying to determine the date of insolvency.

Harriss Protest Bill: It works

Yesterday saw the first application of Paul Harriss’ Workplaces (Protection from Protesters) Act 2014 when protesters were directed to leave a workplace pursuant to sec 11 of the Act.

Petrarch’s Bookshop and author Quentin Beresford were holding a book launch at the Tailrace Function Centre in Launceston when three protesters acting contrary to the provisions of sec 8 entered a business premise with the aim of hindering or obstructing a business activity.

The activity of promoting and selling  the book The Rise and Fall of Gunns meant the premises fell within the broad definition of business premises contained in sec 5 which includes premises used as a shop, market or warehouse.

Minister Harriss was unavailable for comment on the initial success of his controversial legislation.

The rise and fall of Gunns

A tale that needed telling.

Those are the words of Geoffrey Cousins referring to Quentin Beresford’s book ‘The Rise and Fall of Gunns Ltd’.

Mr Cousins is right.

It’s a tale that everyone interested in the future of Tasmania should read.

A failure to understand history increases the chances of repeating past mistakes, a common occurrence in Tasmania.

Quentin Beresford outlines the historical context of the Gunns’ debacle, from the hydro industrialisation era, the Wesley Vale campaign through to the Rouse bribery affair. The inadequacies, failings, Machiavellian manoeuvrings, dishonesty and unethical practices by participants are laid bare.

At no stage were lessons learnt.

Why Bob Gordon had to go?

The seemingly pointless inquiry investigating the sale of the Triabunna mill to Graeme Wood and Jan Cameron in July 2011 rather than to Ron O’Connor and the Aprin Group has brought to light a lot of correspondence and emails , now all accessible on the inquiry website .

Not much we didn’t already know.

One exception was a letter (reproduced below) from Treasury Secretary Martin Wallace to the Department of Economic Development Secretary Mark Kelleher dated 16^th June 2011 which revealed a little more detail on the failed Aprin deal and maybe why Bob Gordon's retirement occured a little earlier than otherwise planned.

Triabunna: Cognitive capture:and the failure of public policy

 

Submission to Inquiry into the Triabunna woodchip mill

 

The committee is to be commended for delving into this period of public policy.

If lessons can be learnt and processes, checks and balances established we may be able to avoid a repetition of the disastrous lost decade for Tasmania.

More than any other event the hurried sale of the Triabunna mill suggests the insolvency of the previous owner at that time, yet public policy makers and their masters, the willing or unwilling victims of cognitive capture turned a blind eye to the obvious and further delayed the inevitable.

The relentless pursuit of a policy objective come hell or high water has proved to be an extremely risky strategy not only for the beleaguered residents of Triabunna but for all Tasmanians.

Gunns' clearing sale

The dissipation of Gunns’ forest estate continues.

Korda Mentha, Gunns’ Receivers in control of Gunns’ secured assets, don’t say much. It’s not a requirement except when they need a favour.

PPB Advisory, Gunns’ Liquidator overlooking the whole show reveal a little  more because they’re charged with winding up Gunns’ MIS schemes and preventing Korda Mentha from grabbing the MIS trees for their clients. As a consequence they update growers with regular, and quite helpful explanations of the progress of the wind-up and how much is being received from asset sales and spent by lawyers accountants and consultants in the fee smorgasbord.

MIS last rites

Reports suggest New Forests has bought Gunns’ assets (not including the pulp mill site and permits) for $330 million.

In all likelihood this means Gunns’ land plus the trees growing on the land. Some of the trees however belong to MIS investors and joint venture partners.

Court proceedings have been underway for some time to get court approval for the amount to be split to the tree growers.

It won’t all end up with the hedge funds or whoever now owns Gunns’ bank debt.

Joint venture partners will get some and some will go to the MIS growers. Korda Mentha also will undoubtedly clip the ticket.

Mill shortfall

 

 

The plantation feedstock shortfall for the proposed pulp mill is still not widely understood.

Just consider the following, first a quote from Martin Ferguson’s recent Review of the Tasmanian Private Hardwood Plantation Estate and second an extract from the last detailed presentation given by Gunns.

Desperate times

When Gunns first entered voluntary administration 15 months ago it seemed as if the secured creditors (the banks) would get most of what they were owed. It didn’t much matter if the pulp mill permit was worthless; there was enough value in Gunns’ other assets to ensure the banks were repaid.

Creditors and shareholders wouldn’t get anything. KordaMentha the receivers in control of most of Gunns’s assets acted for the banks and didn’t care about others: growers, creditors, the people of Tasmania. Their mission was to ensure there was enough in the pool to cover their fees and to pay the banks.

But with every passing day throughout the insolvency administration period the banks’ shortfall has been increasing.

The last gasp

 

 

If ever confirmation was needed we are governed by idiots then look no further than a recommendation of the Ferguson Review of the Tasmanian Private Hardwood Plantation Estate.

After what was little more than a school project trying to determine the extent of private hardwood plantations in Tasmania and describing the problems that have arisen in unravelling the complexities of MIS schemes the review panel concluded, inter alia, we should “promote ongoing expansion of the plantation estate by revisiting incentive schemes”.

What?

Nowhere in the entire report is there any mention of dollars.

The reviewers concluded further assistance to the plantation industry was needed without any reference to any dollar figures?

It’s not unusual to see recommendations based on false assumptions and sophist arguments leading to erroneous often predetermined conclusions but Martin Ferguson and his fellow reviewers, Tom Fisk from Private Forests Tasmania, Jan Davis from TFGA and Norm McIlfatrick, secretary of the Department of Infrastructure, Energy and Resources take the cake.

A new forest way?

Reconstruction of the forest plantation industry continues at a lawyerly pace largely away from media glare.

What happens in the next six months or so will determine a future framework for tree plantations.

Liquidator PPB Advisory is in the final stages of terminating all Great Southern MIS schemes with the recent signing of a contract for the sale of most of the growers’ trees.

MIS scams uncovered

Legendary bank robber Willie Sutton was a clear thinking sort of guy. When quizzed as to why he robbed banks, he replied that’s where the money is.

Had he been born 80 years later Willie could well have become a MIS promoter.

The ATO’s first attempt to impose civil penalties on tax scheme promoters has seen two taxpayers, Ludekens and Van de Steeg, hauled before the courts.

The tax scheme involved Gunns’ 2006 MIS woodlot scheme. Normally the MIS company is considered to be the promoter but in this instance the scammers interposed themselves between Gunns and the grower/investors. This is what made the case slightly unusual. The complexity of the alleged scheme makes the court decisions inaccessible for a lot of readers. The first hearing in Sept/Aug of 2012 before Justice Middleton of the Federal Court who handed down his decision in March 2013 found against the ATO but before a full Federal Court, in August 2013 the ATO successfully appealed.

Gay's fall from grace

Tasmanian timber baron John Gay was this morning fined $50,000 for insider trading in a Launceston court. It's been a serious fall from grace for a businessman who was once highly influential and seemed poised to build a controversial pulp mill in northern Tasmania.

Gay is the former chairman and managing director of failed Tasmanian timber company Gunns Limited. His cavalier disregard for conventions and processes culminated with the insider trading charge; he changed his plea to guilty at the 11th hour and admitted he sold 3.4 million Gunns shares based on inside information which he ought to have known would affect the share price. Gunns, once a top 100 ASX company, is the highest profile insider trader snared by the Australian Securities and Investments Corporation. And it’s not as if Gay was a back-office clerk.

How your taxes bailed out an insolvent Gunns

The federal election scheduled for September means it's a double header over the next 12 months for Tasmanian voters, with a state election due in March 2014. That means lots of Canberra visitors, lots of promises and at least a few presents, and this might be one: according to The Weekend Australian, Julia Gillard is yet to rule out assistance to get the Tamar Valley pulp mill off the ground.

Coincidentally, Gunns' voluntary administrator also recently circulated his detailed report to creditors (Gunns planned to build the original pulp mill).

The pattern of behaviour of the Gunns Group over its last 12 months suggests it was insolvent for a while. Maybe it was insolvent as far back as August 2011, when Gillard and Premier Lara Giddings signed the inter-government agreement on forestry, promising $276 million in funding -- some of which was used to save Gunns.

Gunns lurches into liquidation

It was not surprising Gunns’ Voluntary Administrator recommended all companies in the Gunns group be placed in Liquidation.

The second alternative of passing control back to a Board was never a possibility as Gunns had already disclosed in August 2012 that liabilities exceeded assets and as everyone knows liabilities are rarely understated whilst the reverse is invariably true of assets.

The third alternative of a Deed of Company Arrangement to allow for an extended period of administration so that all parties could achieve a better result was never a possibility because

·        the unsecured creditors aren’t going to get anything  in an orderly administration.

·        The best chance unsecured creditors have of getting a return is if a Liquidator can successfully establish that Directors allowed Gunns to trade whilst insolvent.

·        Grower/investors need a new Responsible Entity (RE) for their MIS projects if they are to continue until harvest and this can occur even if a Liquidator is appointed.

·        If a replacement RE cannot be found for the MIS projects then the growers will vote to liquidate the schemes at the same time as companies in the Gunns Group are liquidated.

·        Grower/ investors hopes for a return may be boosted if breaches by Gunns Plantations of its RE duties can be upheld.

·        The banks’ returns are likely to diminish with every passing day so they just want to get on with the liquidation. Gunns has well and truly tested their patience and forbearance over a considerable period of time.

·        The banks as secured creditors will claw back some amounts from MIS growers if and when the schemes are liquidated for amounts owing to the RE.

·        The Gunns Group structure has been made incredibly complicated with the overlaying of 49,000 MIS growers each with a leasehold interest in land owned in some cases by Gunns and in other instances by third parties. Even if there was a will to keep the structure under Administration there is not the money.

Gunns the morning after

It will probably be 6 months before Gunns’ Voluntary Administrator (VA) presents his full report to creditors (the Second Report) which will reveal once and for all the mess that has been created. At that time there will be a recommendation to ...

• Hand the company back to Directors (unlikely),or

• Enter into a DOCA (Deed of Company Arrangement) where stakeholders agree to haircuts to keep the Group going. This is unlikely due to the complexity of the Group, or

• Liquidate the Group (most likely)

The second coming is more likely

Is Gunns likely to be a takeover target?

Highly unlikely. A takeover implies assuming all the contingent liabilities as well, the ATO debts, class actions liabilities etc. A buyer would need to be extremely desperate or badly advised to venture into that spider’s web.
 

If desperate buying assets and leaving the liabilities behind may be preferable.

Joining the dots

‘Twas the announcement by Gunns on 1st July that further write-downs of its forestry assets were needed in the current environment that has shed a little more light on the problems confronting the Tasmanian forest industry.

The announcement gives a little more context to the going concern deliberations currently occupying the minds of both Gunns’ and FT’s Directors.

Wilful blindness and the new forest industry

Just what is happening with Gunns?

On 15^th May 2012 it requested ASX extend its listing suspension pending recapitalisation which it anticipated might take an indefinite period.

Gunns advised that

·        The Victorian Heyfield timber mill sale agreement was finally executed. The enterprise value was reported at $28 million.

·        The sale will end native forest operations for Gunns in Victoria following similar moves in WA and announced intentions in Tasmania.

·        The sale of Green Triangle assets was proceeding (as it has for the last 12 months)

·        Indicative offers had been received for the mainland plantation assets (in other words the Great Southern MIS management rights) and the Portland woodchip facility and a structured sale process had commenced.

·        Mr L’Estrange had his term extended until 31^st December 2012.

Dream on...

Just when you thought the croupier had gone home, Morningstar analyst Peter Warnes was reported in yesterday’s press as saying ... “This is the last throw of the dice.”

He was referring to Gunns’ plan to raise another $400 million from shareholders. Business Spectator said “the funds would be used to help the company cope with the planned sale of non-core assets”. What does that mean? Are the non-core assets being sold? Or will Gunns be required to pay ‘purchasers’ to take the assets off its hands?

The sale of assets has proved to be tortuously difficult for Gunns.

The sale of Green Triangle land has been awaiting settlement for ages. The latest announcement re the Green Triangle land was only about shuffling the asset into another entity, not reaping any cash from a third party.