Not all creditors are considered equal

Dear Trade Creditor,

As a shareholder of Arrium Limited I am compelled to write to you, to share my thoughts on an insolvency industry that is broken that heavily favours the lenders and screws the little guys, whilst ASIC ponders.

Hindsight is a wonderful thing and it’s a disgrace that 80,000 shareholders and 7,500 creditors (majority trade creditors) of ASX listed Arrium Limited, didn’t have a united and legitimate voice to change the direction of Arrium’s Voluntary Administration by legally delaying the fire sale of Arrium Australia assets, during an infrastructure boom to review viable alternative options.

Shareholders have now been advised that their shares are now worthless, the burden of debt now shifted to the ATO through several hundred million dollars of capital losses to be claimed.

Complex shareholder class actions will take years to resolve.

Trade creditors have been notified of a payout of 16 cents in the dollar.

The second creditors meeting was brought forward from a proposed February date in 2017 to November 2016; press releases from that meeting indicate that the 2 key agenda items were the notification of the successful sale of MolyCop and to table, vote and accept the administrator’s complex Deed of Company Arrangement (DOCA), that would result in a sale of Arrium assets as a going concern, leaving shareholders with an empty shell.

A cynical view of the timing of the above meeting was that the DOCA was now ready, that behind the scenes the lenders had manoeuvred themselves from unsecured to secured creditors, which enabled lenders to not only receive the proceeds from the sale of Molycop, but also to be at the head of the queue for a further payment following the successful sale of Arrium Australia.

A further thought is that given the surging demand for iron ore and steel, it would have been extremely difficult for the administrator in February 2017 to recommend a sale of Arrium Australia, given its improving profit levels and capacity to pay existing debt.

How truly representative was your creditors committee?
My grandfather once told me “if you see a horse called self-interest, back the bastard”
The lenders were well looked after, the employee reps were now confident that Whyalla would not be closed, and jobs were secure, key trade creditors were having their invoices paid to maintain supply…
Who was then looking after the best interests of the remainder and majority of trade creditors?

How informed was your creditors committee?
In the period between entering Voluntary Administration in April 2016 and the second creditors meeting in November 2016 the infrastructure industry surged from its cyclical lows.
Were creditors given up to date surging profit figures of Arrium Australia business units?
Were creditors advised of Arrium major competitor BlueScope’s 3 earning updates to the ASX as profit targets were being regularly increased?

Refinancing existing debt
Were creditors informed that at least 3 proposals from unrelated organisations to refinance the existing debt and put a new management structure in place were received by the administrators prior to the second creditors meeting?

Sale of Arrium Australia
Do creditors know the sale price and was it fair and was it reasonable? Was it 4 times EBITDA of say 350 million, giving a sale price of 1.4 billion? Industry rumours say is was 700 million, if true why was it sold at a fire sale price in a booming market?

Were other options truly ever considered?
Why didn’t the administrator postpone the sale process given the two lowball offers received from the Posco Consortium and Liberty House? Then, review viable options given the improving financials in early 2017.
I understand that Epic Energy is undertaking legal action on behalf of trade creditors to review the fairness of the distribution to creditors, I hope there is a positive outcome.

On a personal note I have withdrawn from investing in ASX listed companies as there is limited protection for ordinary shareholders.

Kind regards,
paddles1