Gunns may have traded while insolvent: Administrators’ report

Embattled timber company Gunns Group has been accused by the company’s administrators of potentially trading while insolvent.

The investigation conducted by of PPB Advisory administrators Daniel Bryant, Ian Carson and Craig Crosbie found the date of the company’s insolvency was September 21, 2012 at the latest, but could potentially be dated as early as March 2012, according to the creditor’s report read by SmartCompany.

“Our preliminary view is that the Gunns Group was insolvent from at least 21 September 2012 when it had insufficient funds to meet its debts as and when they fell due. However, the Gunns Group may have had solvency concerns potentially from: September 12, 2012, July 2012, March 2012,” the report says.

In March 2012 the report says the viability of Gunns eroded when “an equity partner withdrew its proposal”

“The ability to source alternative equity appeared challenging with hardwood export prices in the market in which the Gunns Group participated continuing to decline”.

The company was placed in administration on September 25 last year and the administrators are now saying the company should be liquidated.

The creditor’s report also revealed possible breaches by Gunns Groups representatives, which the administrators say should be investigated by a liquidator.

The administrators also say the further investigations are needed into possible breaches by auditors KPMG.

“We believe further investigations should be made into whether any Australian Auditing Standards may have been breached,” the report says.

The company’s collapse was influenced by declining hardwood exports, the environmental campaign against the proposal to build a $2.3 billion pulp mill and poor management decisions.

“During 2011 there were further declines in hardwood export volumes and prices in the market in which the Gunns Group participated, resulting in further revenue reductions and net losses after tax ($454m for FY11).”

IBISWorld research found logging industry growth declined at a rate of 4.1% per annum between 2008 and 2013, but predicted between 2013 and 2018 annual growth would return slowly at 1% per year.

The latest research also found the timber re-sawing and dressing industry also had negative growth between 2007 and 2012 of minus 1.6%, indicating difficult overall market conditions.

Gunns’ debt woes date back to 2007 when the company entered into an agreement with its lenders. The company now owes secured lenders $446 million and unsecured lenders (including intercompany loans) $2.4 billion, but it is unlikely all this money will be repaid.

“We understand from discussions with the Receivers that it is unlikely that there will be sufficient proceeds from secured asset realisations to satisfy the Lenders’ debt,” the report says.

Gunns was contacted by SmartCompany this morning, but no reply was available prior to publication.