Centro and PwC to face off in court

THE latest twist in the saga to merge the embattled Centro Properties Group and Centro Retail Trust businesses will see the two pitted against former auditors Pricewaterhouse Coopers in court this morning, after a judge yesterday delayed giving the tie-up final approval.

By InvestSMART · 2 Dec 2011

By InvestSMART ·
2 Dec 2011

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While Justice Ian Barrett in the NSW Supreme Court intended to rule in favour of Centro Properties Group (CPG) against the accounting firm he relented after long submissions from PwC, and ordered a stay of execution.

CPG faces receivership if the merger paperwork is delayed and Centro fails to pay a key chunk of its huge debt by December 15. The tie-up of CPG and Centro Retail will give senior lenders control of the new Centro Retail Australia trust in exchange for forgiving the former's debt.

Yesterday's legal stay of execution was granted to allow PwC a chance to read the court documents and lodge an appeal if necessary.

In his judgment Justice Barrett said there was "in the cirumstances, no unfairness to PwC inherent in the schemes of arrangement".

PwC, which is involved in a class action against the property group, has argued for some time that Centro improperly transferred $100 million, with almost half benefiting shareholders, at the expense of creditors.

PWC claims the proposed merger with Centrol Retail Trust and the debt reduction plan, reduces the assets claimants could get access to over the long term.

Justice Barrett has set a deadline of 11am today to approve the scheme of arrangement, after which Centro has an hour to lodge all necessary paperwork to the Australian Securities and Investments Commission, which will set the terms in motion.

"Upsetting of any or one element could be fatal to the whole plan," Justice Barrett said in delivering his ruling yesterday.

Centro has $2.9 billion of debt maturing on December 15, and failure to win approval for the reorganisation plan would push the company into receivership, Centro Properties Group chairman Paul Cooper told security holders last week when they gave the merger the go-ahead.

Centro's directors declined to comment on the court decision and will instead wait until today when they hope the court-approved schemes have been lodged.

Lawyers for Centro argued that if the new Centro Retail Australia Trust is unable to start trading on December 15, that could also trigger debt defaults over other third party loans.

"The position we face is that PwC is only seeking this order in aid of a possible application to appeal and if this goes to the Court of Appeal this would undermine the merger," they stated.

PwC's lawyers countered that there appeared to be no impediment in gaining an extension for these loans as well as the senior lender's outstanding loans.

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Frequently Asked Questions about this Article…

What is the proposed Centro Properties Group and Centro Retail Trust merger about?

The merger would combine Centro Properties Group (CPG) with Centro Retail Trust to create a new Centro Retail Australia trust. Under the plan, senior lenders would take control of the new trust in exchange for forgiving much of CPG’s debt as part of a wider reorganisation.

Why is PwC challenging the Centro merger in court?

PwC, which is involved in a class action against Centro, says Centro improperly transferred about $100 million — with almost half allegedly benefiting shareholders at the expense of creditors. PwC argues the merger and debt-reduction plan could reduce the assets claimants might access over the long term and has sought time to read the court documents and potentially appeal.

What did the NSW Supreme Court and Justice Ian Barrett rule about the scheme of arrangement?

Justice Ian Barrett delayed giving final approval and granted a stay of execution to allow PwC to review the court paperwork and consider an appeal. He said there was ‘no unfairness to PwC in the schemes of arrangement’ but set a tight deadline for approval so the broader reorganisation could proceed.

What are the key deadlines investors should know about in the Centro case?

The court set an 11am deadline (the morning after the delay) to approve the scheme of arrangement. If the court approves it, Centro then has one hour to lodge the approved schemes with the Australian Securities and Investments Commission (ASIC) to put the terms in motion. Separately, Centro faces $2.9 billion of debt maturing on December 15, which is a critical date for the restructure.

How could a delay in the merger paperwork affect Centro and its creditors?

A delay could be fatal to the reorganisation: Centro faces receivership if it cannot pay a key part of its $2.9 billion debt by December 15. Lawyers for Centro also warned that if the new Centro Retail Australia trust cannot start trading on December 15, that could trigger defaults on other third‑party loans.

What role do senior lenders play in the merger and debt plan?

Senior lenders would gain control of the new Centro Retail Australia trust as part of the deal, in return for forgiving Centro Properties Group’s debt. PwC’s lawyers have suggested there may be ways to extend outstanding loans, while Centro’s lawyers warned that an appeal or delay could undermine the merger.

What did Centro’s directors say about the court decision and next steps?

Centro’s directors declined to comment on the delayed court decision and said they would wait until the following day when they hope the court‑approved schemes have been lodged with ASIC and the formal steps to implement the merger can begin.

What should everyday investors watch for next in the Centro and PwC dispute?

Investors should watch the court’s approval (or any appeal by PwC), whether Centro lodges the schemes with ASIC within the court’s timeline, and whether the new trust can start trading by December 15. Any of these outcomes could materially affect Centro’s risk of receivership and the prospects for creditors and shareholders.