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“RCR Tomlinson may have traded while insolvent, administrators find
Jenny WigginsInfrastructure Reporter
Updated Mar 20, 2019 — 11.35am, first published at 10.20am
RCR Tomlinson may have been trading while insolvent at least a month before it went into administration, meaning its board directors are potentially personally liable for debts incurred, administrators McGrathNicol said as they recommended the collapsed engineering group be liquidated.
The company
filed for administration on November 21 but had "potentially become insolvent at the end of October 2018 or earlier," McGrathNicol said in a report released to creditors.
The report confirmed that 4400 unsecured creditors who are collectively owed $170 million as well as shareholders will receive nothing if RCR goes into liquidation because not enough money has been raised from asset sales to pay off secured creditors.
Roderick Brown was chairman of RCR when it collapsed in late November.
Board directors have a responsibility to ensure that a company does not trade while it is insolvent. If a company goes into liquidation, and insolvent trading is found to have occurred, the company's directors are personally liable for the debts incurred during that time.
RCR's board, which was chaired by Roderick Brown, had four other directors when the company went into administration: Bruce James, Lloyd Jones, Sue Palmer and David Robinson. Former director Eve Skira
unexpectedly stepped down from the board on October 3.
already investigating RCR's collapse. A second meeting of creditors will be held in Sydney and Perth on March 26 to vote on whether RCR goes into liquidation.
The administrators said directors may also have breached
section 180 of the Corporations Act, which requires directors to exercise "care and diligence" because RCR
took on 15 solar projects worth a total of $1.5 billion within 18 months without changing its governance or risk structures.
RCR administrators McGrathNicol say a liquidator can investigate the exact date the engineering group was trading while insolvent. James Brickwood
McGrathNicol said the
projects appeared to have been "under-priced", eroding profit margins, and that project costs were not accurately forecast and that project controls were inadequate, causing significant cost over-runs - sometimes at late stages of contracts.
The writedowns on the Daydream and Hayman contracts, which were known as Project Gretel, lowered RCR's gross margins to 1.3 per cent from 4.2 per cent.
The administrators also raised questions over RCR's $100 million capital raising on August 28, "considering what was known (or should have been known) by the RCR board in relation to true cash requirements and status of solar projects at that time".
RCR's board was told of cost blow-outs on two other solar projects (in addition to the Hayman and Daydream farms) in late October of $11 million and $5 million respectively as well as a $5 million provision taken on a third solar project.
RCR's unsecured creditors, who are owed $170 million, will not get any money back. James Brickwood
McGrathNicol said that while RCR had sufficient systems to record financial transactions accurately and prepare financial statements, "the books and records may not have accurately reflected RCR's true financial position" from June 2018.
RCR struggled with delays in the completion and commissioning of its solar projects, including delays in receiving so-called milestone payments while it met demands for additional tests or documents. The company was due to have completed 10 solar projects by the end of November but only completed two projects by that date.
The engineering group received upfront payments at the start of solar projects, giving it $152.7 million of cash inflow by December 2017. But by July 2018, some $200 million of cash had flowed out of RCR due to the payment delays, cost blow-outs and liquated damages claims.
McGrathNicol said RCR's cash flow forecasts were "optimistic" given its project problems and that its management did not appear to have "applied sufficient scepticism" in challenging forecasts, particularly on milestone payments and project wins.
Cash receipts in October were $92.4 million below forecasts made on August 10. RCR "stretched" its trade creditors in mid-2018 so it could manage its cash flow and withheld owed payments to the Australian Tax Office, the administrators said.
RCR was forced into administration in late November because its secured creditors refused its request to increase its existing overdraft facility by $86 million, and provided it with a waiver in the event that it breached its gearing covenants.
The administrators have been selling RCR's assets but all money raised will pay off five secured creditors: the Commonwealth Bank, Japan's MUFG, HCC International Insurance, Swiss Re International and Chubb Insurance. Secured creditors will receive up to $156.6 million, but they have claimed up to $231.9 million, meaning they will not get all of their money back.
RCR's former employees are expect to receive a payment from the Federal government's
Fair Entitlements Guarantee scheme.
Litigation firm Quinn Emanuel Urquhart & Sullivan has filed class action proceedings in the NSW Supreme Court alleging RCR breached continuous disclosure laws because its senior management team either was aware or should have been aware of its problems linked to solar farm projects before announcing them to the market at the end of August.
RCR's largest shareholder was Perpetual, with almost 14 per cent, followed by the Pendal Group with 9 per cent and Allan Gray with 7.8 per cent.”
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