Nice to see you here. This one is my pet project at this time so I am happy to have a go at answering some of the things you raise. First of all as to who can stop them, I am hoping that the answer will prove to be "the minority shareholders". One thing we have all learnt along the way is that it won't be ASIC unless they are dragged screaming into the picture.
One of the Class A shareholders is giving serious consideration to standing for the Board at the coming AGM. Although success is not overly likely, it will focus the attention of minority shareholders and draw attention to the narrowness of the existing Board all of whom are, to put it mildly, close acquaintances of the managing director.
Two of the Class A shareholders are very experienced in taking cases to the Takeover Panel having taken cases to the panel on three previous occasions. I happen to know that they have already prepared a case for the Panel and are simply waiting for a trigger. I would love to be a fly on the wall when the directors have to justify the share transactions mentioned in my previous post.
The write-down of the vendor loan is an interesting one. One of the shareholders recently checked with the CMI secretary and was told "to date the debtor has been paying monthly interest rates and no interest has been capitalised in relation to this receivable".
Australian Accounting Standard 139 contains the following quote: "A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated ... Losses expected as a result of future events, no matter how likely, are not recognised..."
The Hofmeister parent company that holds the car parts business is named Transport Water and Power Holdings Pty Ltd and is required to lodge annual returns with ASIC. I purchased a copy of the 2008/2009 accounts (the latest available) to see how this company was performing. It made a profit for the year of $4.5 million although the vast bulk of this profit was due to a one-off gain on acquisition of the car parts business and most of the remaining profit was a government subsidy which does however appear to be repeatable each year in coming years. The 2009/2010 accounts won't be lodged until October but they will make for interesting reading.
So what we have at this point is that the company which contains those assets is profitable according to the latest accounts, it is paying the interest payments and the loan is not due for repayment until April next year. How can you write half of it off at this point in time? That is a question that I suspect we will be asking of the auditor.
There are two points worth considering here. Firstly whether or not the purchaser is capable of repaying the loan and secondly whether the guarantees and security over the loan are adequate to cover any non-payment. When shareholders voted in favour of that sale and the vendor loan we were assured by this Board that they were confident that the security on the loan was sufficient. Two years later they appear to be telling us that that assurance was incorrect.
In regard to whether the Class A shareholders have a case for oppression, I found a US book entitled Corporate Dividends by Donald Kehl. It can be found at:
and pages 167 to 169 are worth a read. The gist of it is that where the dividend for preference shareholders is non-cumulative as it is in this case, then the onus falls on directors to show why it should not be paid. This must particularly be the case when the major shareholder and benefactor of this non-payment is the managing director.
(20min delay)