Voting
manipulations by directors of financially troubled Trends Publishing caused the
High Court to set aside a Part 14 scheme intended to force a debt compromise on
creditors.
Media company Trends Publishing suffered
a severe downturn in business following the global financial crisis in
2009. Attempts to source new working
capital with a $17.2 million Callaghan Innovation grant has fallen flat with
Callaghan alleging fraud and demanding repayment of grant money advanced to
date. A Serious Fraud Office
investigation commenced in late 2014 resulted in Trends losing clients and some
60 per cent of its staff leaving.
The High Court was told Trends management
implemented a Companies Act Part 14 debt compromise scheme in May 2015 to ease
cashflow problems. If approved by a
majority holding 75 per cent of affected debt, a Part 14 scheme is binding on
creditors. Creditors allege they were
forced into the scheme with Trends management David Johnson, Paul Taylor and
Louise Messer including “insider” creditors in the voting pool to achieve 75
per cent approval.
Evidence was given that debts totalling
$3.23 million included in the vote comprised debts owed to Trends management personally
or to an associated company controlled by them.
These votes amounted to 75.53 per cent of votes cast, enough to approve
the Part 14 scheme on their own. The Trends
Part 14 proposal promised an upfront payment of one hundred cents in the dollar
for the first $1000 owed all affected creditors with the balance paid by
instalments. Further working capital was
to be injected by an unnamed third party. Justice Heath was told no payments
have in fact been made under the Part 14 scheme, despite scheme approval by
creditors’ in May 2015.
His Honour set aside the scheme. There was a deliberate manipulation of the
voting system, he said. The insider
creditors should have voted in a different poll separate from other creditors. Insider creditors had a different interest in
the outcome to other creditors. The High
Court was told insider creditors had elected not to participate in any
distributions from the proposed Part 14 scheme but nevertheless “reserved the
right” to vote.
Advicewise
v. Trends Publishing – High Court (7.09.16)
16.137