THE ADMINISTRATOR of failed grain business GrainPro has said in his preliminary creditors' report that it was possible the business had been trading when insolvent since at least March 31 and maybe even as far back as August last year.
Adam Shepard, Setter Shepard, said while the company had a net asset surplus as late as June 30 this year, this included related party loans which were not readily realisable.
He recommended to creditors that the Wagga Wagga-based company be wound up.
Creditors of the business, which owes what is estimated to be over $7 million, will vote whether to wind up the company or to enter a Deed of Company Arrangement (DOCA) at a meeting in Wagga Wagga on August 30.
Mr Shepard said while he recommended winding up the company, there was merit in the DOCA if third party security can be provided.
The report did not make for happy reading for creditors, in particular unsecured grower creditors.
Initial reports on the company's financial state tabled at the first creditors' meeting earlier in the month painted a relatively rosy picture that saw a scenario where all creditors received a full payment.
However in his report Mr Shepard said unsecured creditors, including the majority of grower creditors, could expect a payment of 25 cents in the dollar.
The discrepancy has arisen because in the Report on Company Activities and Property (ROCAP) GrainPro did not include a loan from financier Scottish Pacific of over a million, which pushed the total owed from $5.7 million to $7 million.
The ROCAP showed a net surplus of $1.16 million, however upon Mr Shepard's investigation he said there would be a net deficiency of $3.87 million.
Several assets were downgraded in the Setter Shepard report.
GrainPro valued grain assets at $1.5 million but this was written down to $1 million by Setter Shepard.
Plant and equipment were initially valued at $659,000 but was readjusted to $77,000 in another dramatic readjustment.
In further bad news for grower creditors, Mr Shepard has identified $225,000 of payments after March 31 this year as potentially the subject of 'unfair preference' clawbacks, meaning growers paid in this have to prove they had no suspicion the company was trading while insolvent.
GrainPro had impressive revenue figures, rising quickly to $43 million in the 2018-19 financial year, however Mr Shepard said profit margins were slim and the company struggled with working capital and had significant cash flow issues.
Mr Shepard nominated a lack of working capital as a key reason for the company's failure.
Mecardo grain industry analyst Andrew Whitelaw said he had expected to see the optimism of the initial creditors' meeting dissipate.
"I was surprised that there was so much positivity at the first creditors meeting, when it was expected that most growers would be paid out," he said.
"It was clear from the initial report that there were some factors not included such as the Scottish Pacific facility or the actual market value of the assets, as opposed to their cost price."
With this in mind he said it was not a shock to see the deficit raised.
He said he was concerned the company had appeared to trade when it was insolvent.
There are potential legal ramifications if the Australian Securities and Investment Commission (ASIC) decides to officially investigate whether the company traded when insolvent.
Gregor Heard is Fairfax Ag Media's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his ten years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector. Away from work, he is a keen traveller, having spent his long service leave last year in Spain learning the language.
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