Receivers near for Gippsland Secured Investments
Regional Victorian non-bank lender Gippsland Secured Investments continued its fight to stave off receivership in the Federal Court on Friday.
GSI is defending an action brought by The Trust Company, which is a creditor of GSI by virtue of its role as trustee for the debentures issued by GSI. Trust has been pushing for a ruling that it has the right to appoint a receiver for GSI, arguing that the lender is technically insolvent and any further non-essential costs (including legal and advisory expenses) will decrease note-holders' funds.
One week ago, a group of Victorian business leaders and investors emerged with a proposal to restructure and recapitalise GSI by splitting it into two managed investment schemes. (From the sketchy discussion in court, the concept seems to be akin to a "good bank, bad bank" model).
This so-called "rescue group" was given 24 hours on Thursday by Justice Kathleen Farrell to outline the level of support it would be prepared to guarantee from the group's own resources to set up the MIS structure so as to protect note-holders' funds.
Reporting back to the court on Friday, Simon White, the legal representative for the rescue group's chairman, Duncan Johnson, declared that his client's group had guaranteed funding of A$300,000 to cover the preparation costs of an implementation agreement, which, he said, would take two weeks to complete.
White then announced that the group was also prepared to put up a further $300,000 - effectively a 'gift' to the debenture holders - should the rescue plan not proceed. This would be transferred to his solicitor's trust account by 10am today.
Ross Foreman, representing GSI, supported White's submission and added that the dispute between the parties over what constituted impairments and the shortfall in capital, a figure he put at $3.8 million, would be taken care of by the proposed recapitalisation. "There is only upside to this two-week adjournment," Foreman told the court.
The representative for Trust, Alexander Street, countered with a detailed listing of what were purported to be contradictory statements made by GSI over the previous month concerning its financial position and degree of impairment.
Street, when challenged, said he was giving examples to show Trust's ongoing concern that GSI was technically insolvent. There was no implication of dishonesty on the part of GSI's management as this had already been ruled out earlier in the week.
The Australian Securities and Investments Commission's representative, Michael Izzo, was also not supportive of the rescue plan, pointing to the difficulty involved in making an accurate comparison between "the benefit and utility" of the plan so far outlined as opposed to the cost of appointing a receiver. "In my opinion, that's unsatisfactory," he said.
In working through the affidavits from Trust, all parties, including Justice Farrell, were at pains to avoid discussing specific valuations because of confidentiality concerns.
Nonetheless, Banking Day is aware that at least one major GSI debtor, Riviera Properties, has already admitted to a downward revaluation of its land and property developments that means RPL is in breach of the loan to valuation covenant set by GSI.
RPL, a large Gippsland-based "waterfront and lifestyle property" developer, is listed in GSI's most recent debenture prospectus, dated April 2013, as one of three borrowers that each account for five per cent or more of GSI's loan book.
A shareholder update on RPL's website, dated 20 August, told its 350 shareholders that the firm had signed a "Deed of Forbearance" with GSI, agreeing to accelerate development and sales to reduce its debt.
According to RPL's managing director, Tim Weight, the agreement binds GSI "and any successor to GSI" for the term of the deed out to 31 January 2014.
The existence of this deed was not raised in court last week and the action by Trust, to appoint a receiver for GSI, will continue in the Federal Court in Sydney today. The "rescue group" is expected to respond in detail to Justice Farrell's direction to "speak now, or forever hold your peace" over how the cost to GSI's note-holders will be managed if a two-week adjournment is granted.