Investors assured loan was secured
Sydney Morning Herald
Tuesday March 30, 2010
ALLCO FINANCE GROUP twice gave formal assurances to its shareholders that a controversial $50 million loan made to a related party had been secured - a contradiction to evidence given at last week's inquiry in the Federal Court that heard the loans were unsecured.Allco's accounts also clearly stated that the company would have priority over other creditors if the loan went sour. In contrast, the inquiry heard that the company did not.The question of what security, if any, was taken out by the parent company when the loans were given to Allco Principals Trust (APT) in December 2007 lies at the heart of investigations being carried out by receivers Ferrier Hodgson.The disclosures present another challenge for three key Allco directors - former chairman David Coe, former deputy chairman Bob Mansfield and former chief executive David Clarke - who signed two sets of the group's accounts stating that there was firm security for the loan.Allco agreed to lend the money because APT, which it wholly owned and managed, was suffering financial problems as a result of huge margins loans it had taken out over a chunk of Allco shares. These shares, representing 13 per cent of the company, were owned by Allco's top executives including Mr Coe.APT used the cash from the loan to meet margin calls as the value of Allco's shares slumped between August 2007 and February 2008.The intention of the cash lifeline was to prevent the lenders from seizing the shares and avoid a further and fatal decline in Allco's share price.Last week's examinations form part of an inquiry into the collapse of Allco in November 2008.It emerged during the court hearings that, contrary to the belief of the directors including Mr Coe, Mr Mansfield and Mr Clarke, Allco made the loan on an unsecured and subordinated basis.This was despite discussions within the company over a five-month period that the loan should be tied to assets owned by APT and some of its subsidiaries. It was also said that the security should rank alongside other creditors.Such terms would have given Allco greater chances of recovering the money had APT collapsed. APT was placed in administration in March 2008. Allco subsequently wrote down the value of the loan to nothing and never recovered the money.However, the company said in both its half-year accounts for the period ending December 31, 2007, and its full-year accounts for June 30, 2008, that the APT had a "priority position over other creditors".It also stated that the group's collateral included APT's interest in an infrastructure fund that owned aviation, shipping and rail assets and that was to be floated on the Singapore stock exchange.But Allco only got a pledge from APT not to take out any more loans without the group's approval and that did not apply to the subsidiary company that owned the infrastructure fund.Mr Coe and Mr Mansfield signed the half-year accounts on behalf of all of Allco's directors, which were released in February 2008.Mr Mansfield, who subsequently became acting chairman after Mr Coe stepped down, and Mr Clarke approved the full-year accounts that were published that August - nine weeks before Allco itself collapsed.
© 2010 Sydney Morning Herald
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