How the wheels fell off Hastie
An investigation into the collapse last year of engineering firm Hastie has revealed that a number of key players, including directors and the firm's auditor, may be held to account.
Murphy's Law, it appears, applied in spades to the collapsed Hastie group, although it may have been given a big boost by the ineptitude of its management and board.
The preliminary findings of a report to creditors by Hastie's administrators from PPB Advisory tend to suggest that everything that could go wrong within Hastie did go wrong, albeit that much of what led to the group's collapse last year was of its own making.
Hastie, an international construction services group, was put into administration last year after the surfacing of $23 million of ‘'accounting irregularities'' and a failed attempt to convince its banks to support a recapitalisation.
That came less than 12 months after an earlier recapitalisation and a restructuring of its borrowings that included a $160 million equity raising backed by heavyweight investors, Lazard Private Equity, Schroders, Perennial and the Pratt family's Thorney Investments.
PBB, however, believes the seeds of Hastie's demise were sown a lot earlier. After it listed on the ASX in 2005 Hastie spent $277 million on eight acquisitions between 2008 and 2010 that it financed with $154 million of equity and $123 million of debt, which PBB says was a higher debt load relative to cash flows than other listed contractors.
The short version of the explanation for Hastie's failure is that the poor strategic, operational and financial management of Hastie, the poor performances of the companies it acquired and increased competition in the post-GFC environment affected Hastie's cash flows and it was unable to meet its debt-funding obligations.
The longer version highlights poor understanding and management of the risks of expanding offshore – Hastie made acquisitions in New Zealand, the UAE, Saudi Arabia, Qatar, the UK, Ireland, Kazakhstan, Gibraltar and the Caribbean – inadequate systems and controls, inadequate board reporting systems, a lack of board control and interrogation of management and their financial reports and the poor post-acquisition performance of the acquired businesses.
In fact the picture the administrators provide of the group before Bill Wild was appointed CEO quite late in the piece to replace the man who led the acquisition spree, David Harris, was of a chaotic, poorly-managed and poorly-directed company with books and records that were riddled with deficiencies and in which the value of key assets had been materially over-stated.
The banks, owed about $530 million, are unlikely to recover all of their funds and ordinary unsecured creditors, owed about $390 million, face a wipe-out unless the liquidator or creditors are able to successfully sue someone.
That's not out of the question. PPB says it has identified a number of possible breaches of companies' law by directors as well as possible breaches of their duties and general law. The auditor, Deloitte, may not have fulfilled its obligations and the advisor to the prospectus for that $160 million raising may have breached its retainer if it could be demonstrated its work was deficient.
While there were no prima facie indications that Hastie traded while insolvent, further investigation might establish that the group's books and records were deficient, which could give rise to a presumption of insolvency that a liquidator could rely on, PPB said.
The administrators have reported possible breaches of directors' duties onto the Australian Securities and Investments Commission.
The possibility that Hastie's books could have been deficient and misrepresented the group's condition for quite some time will be of particular interest to those who subscribed to that 2011 capital raising.
The core subscribers are all well-heeled and were irate about the complete loss of their money within such a short time-frame. The PPB report won't make them, or other Hastie shareholders, any less angry and does provide a list of potential targets from which they could try to seek recompense.
The preliminary findings of a report to creditors by Hastie's administrators from PPB Advisory tend to suggest that everything that could go wrong within Hastie did go wrong, albeit that much of what led to the group's collapse last year was of its own making.
Hastie, an international construction services group, was put into administration last year after the surfacing of $23 million of ‘'accounting irregularities'' and a failed attempt to convince its banks to support a recapitalisation.
That came less than 12 months after an earlier recapitalisation and a restructuring of its borrowings that included a $160 million equity raising backed by heavyweight investors, Lazard Private Equity, Schroders, Perennial and the Pratt family's Thorney Investments.
PBB, however, believes the seeds of Hastie's demise were sown a lot earlier. After it listed on the ASX in 2005 Hastie spent $277 million on eight acquisitions between 2008 and 2010 that it financed with $154 million of equity and $123 million of debt, which PBB says was a higher debt load relative to cash flows than other listed contractors.
The short version of the explanation for Hastie's failure is that the poor strategic, operational and financial management of Hastie, the poor performances of the companies it acquired and increased competition in the post-GFC environment affected Hastie's cash flows and it was unable to meet its debt-funding obligations.
The longer version highlights poor understanding and management of the risks of expanding offshore – Hastie made acquisitions in New Zealand, the UAE, Saudi Arabia, Qatar, the UK, Ireland, Kazakhstan, Gibraltar and the Caribbean – inadequate systems and controls, inadequate board reporting systems, a lack of board control and interrogation of management and their financial reports and the poor post-acquisition performance of the acquired businesses.
In fact the picture the administrators provide of the group before Bill Wild was appointed CEO quite late in the piece to replace the man who led the acquisition spree, David Harris, was of a chaotic, poorly-managed and poorly-directed company with books and records that were riddled with deficiencies and in which the value of key assets had been materially over-stated.
The banks, owed about $530 million, are unlikely to recover all of their funds and ordinary unsecured creditors, owed about $390 million, face a wipe-out unless the liquidator or creditors are able to successfully sue someone.
That's not out of the question. PPB says it has identified a number of possible breaches of companies' law by directors as well as possible breaches of their duties and general law. The auditor, Deloitte, may not have fulfilled its obligations and the advisor to the prospectus for that $160 million raising may have breached its retainer if it could be demonstrated its work was deficient.
While there were no prima facie indications that Hastie traded while insolvent, further investigation might establish that the group's books and records were deficient, which could give rise to a presumption of insolvency that a liquidator could rely on, PPB said.
The administrators have reported possible breaches of directors' duties onto the Australian Securities and Investments Commission.
The possibility that Hastie's books could have been deficient and misrepresented the group's condition for quite some time will be of particular interest to those who subscribed to that 2011 capital raising.
The core subscribers are all well-heeled and were irate about the complete loss of their money within such a short time-frame. The PPB report won't make them, or other Hastie shareholders, any less angry and does provide a list of potential targets from which they could try to seek recompense.
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