Gunns enters voluntary administration

Timber company Gunns Ltd has entered voluntary administration, blaming the refusal of its banks to allow it to keep the proceeds of asset sales to keep the company afloat reports The Australian.

The decision announced on Tuesday morning follows the company's AU$904m loss after tax last financial year, after write-downs due to the sustained slump in the woodchip export market and lack of investor support for its AU$2.3 billion pulp mill project.

As at 30 June this year, the company founded in 1875 had debts of AU$526m and total liabilities of AU$879m, almost the same as its total assets of AU$903m. "Ongoing lender group support has been required in order to stabilise the company's operations whilst discussions in relation to a potential capital raising, restructuring or alternative transaction proceed," the company told the Australian Securities Exchange.

While lenders, which include the ANZ Bank, had previously allowed the company to retain some asset sale proceeds to keep the company operating, this was no longer the case.

"The company now regretfully advises that the lender group has informed the company that the lenders will not permit the company to retain further funds," it said. As a result, the company is unable to continue trading and the directors appointed PPB Advisory as administrators.

As a consequence of the Gunns announcement experts said that the company is expected to also place wholly-owned Gunns Plantations subsidiary that runs its timber growing schemes into administration as well. This is going to create considerable uncertainty for investors who put up millions and might have to repay loans.

More than AU$600 million in investment was raised in the 16 schemes that Gunns released since it began operating in the sector in November 1999, one year after introducing the managed investments system, according to the Australian Financial Review.

Last year, Gunns reported zero earnings from its managed investment business and announced last month that it would write down AU$172 million of the scheme’s assets. Law specialists have said there are similarities with the collapse of Timbercorp and Great Southern managed investment schemes in recent years, both of which left thousands of investors owing billions of dollars.

Source: The Australian, The Australian Financial Review

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