Christopher Pyne
The Australian Forest Contractors Association (AFCA) wants Federal Industry and Innovation Minister Christopher Pyne to include changes to preferential payments in his push for company law overhaul. Source: ABC News
The liquidators of timber giant Gunns Limited have taken action against forestry contractors to recoup millions of dollars for company creditors.
AFCA has sent a letter to Mr Pyne asking for preferential payment changes to be included in an insolvency law review and wants monthly payments under a contract excluded as preferential payments.
Mr Pyne had previously declared insolvency laws would be included in an innovation policy statement, which is expected to be released next month.
The Federal Government has signalled that there will be proposed tax and corporate law changes in next month’s innovation and science agenda, to help encourage more investment in new ventures.
The association wrote to Mr Pyne that contractors were being sued because any payments made six months prior to a company becoming insolvent could be scrutinised and clawed back under current preference payment law.
AFCA director Phillip Dohnt said many contractors were not aware that Gunns was insolvent.
“The law is wrong, it needs a big review, and the Honourable Christopher Pyne hopefully will take that into account,” he said.
“If we have a contract and that company does go into liquidation, that contract has legitimate payment clauses in it which should be recognized.”
In other words, most contractors have in their contracts that they will get paid within 30 days of the end of month, that to me is a legitimate payment and it shouldn’t be seen as a preferential payment.”
Gunns contractors face unfair outcome, AFCA claims
Mr Dohnt said liquidator PPB Advisory was arguing that their members should have known that Gunns was operating insolvent between July 6 and September 21. But he said PPB’s Advisory’s own report on Gunns in February 2013 could not identify a specific date that the company became insolvent.
“With all the information they had, they still couldn’t actually define a date, they suggested there could be four different dates, and yet the unsecured creditors without any financial information prior to them going into liquidation should have known,” he said. “It’s just ridiculous.”
In the letter, AFCA wrote that contractors had been penalised on the premise that because they made enquiries about outstanding payments in the last six months prior to Gunns’ insolvency, they should have suspected the company was insolvent and should have stopped all trading.
But Mr Dohnt said that they were assured that it was a cashflow problem.
“There was definitely cash flow issues, but a lot of businesses have cash flow businesses … but that doesn’t mean they are insolvent,” he said.
“Gunns had the backing of their financiers … and most contractors were getting constant reassurance from the senior managers at Gunns that they were going to trade out of their issues.”
Mr Dohnt’s contracting business LV Dohnt and Company was a chipping contractor for Gunns and is being sued for $2.8 million and costs, which he said could send him out of business.
He said AFCA wanted the law changed so that receiving monthly payments under a contract in the future were not included as preferential payments under insolvency law.
The Innovation Minister’s office has referred the matter to Assistant Treasurer Kelly O’Dwyer, who said a review is looking at whether current insolvency arrangements are appropriate or discouraging entrepreneurs.
The Treasurer is the minister responsible for the Corporations Act, which covers company insolvency.
Gunns went into voluntary administration in 2012 after reporting heavy financial losses, owing millions of dollars to businesses and government departments.
Sources close to the matter said 70 unsecured creditors had action brought against the company in the Supreme Court of Victoria, which included forestry contractors and Forestry Tasmania.
About half of those opted to settle out of court. Of the cases settled out of court, on average they settled on 75% of the disputed amount. ‘
