Coast mill in deep trouble

Press, 15 May 1987, Page 1

Coast mill in deep trouble

Another economic blow seems about to fall on the West Coast, hit by corporatisation of its coal and forest resources. The big plywood mill at Gladstone, south of Greymouth, may be insolvent, according to a report to its major shareholder, the South Australian Government, and could be closed. < The mill, run by International Panel and Lumber (New Zealand), Ltd, employs about 120 people. According to a special correspondent in Adelaide, the South Australian Premier, Mr Bannon, said yesterday that a decision on the future of the Gladstone factory would be made next week. The South Australian Government is facing losses of sAustB million (39.8 million). The Gladstone factory is 70 per cent owned by the state-owned South Australian Timber Corporation (SATCO). The factory was taken over by the Westland Industrial Corporation, Ltd, (Wincorp) from the financially troubled Aorangi Forest Industries, Ltd, in 1984, and later merged with a subsidiary of SATCO. The South Australian Minister of Forests, Mr Abbott, said the joint venture would give the new company the potential to-pene-trate plywood markets in Australia, as well as New Zealand, the United States, Hong Kong, and South-East Asia. kA confidential report by the chartered accountant, Peat, Marwick, Mitchell, and Company, commissioned by Mr Abbott, indicated that IPL (New Zealand) could now be construed to be insolvent, the correspondent reports. . > , The South Australian Government appears to have the choice of either cutting its losses and closing IPL or pouring in additional money Jn the hope it can trade out of its present problems.

Two reports have been prepared for the state government on the Gladstone Plywood mill, one by Peat Marwick on the mill’s financial condition, and the other on the potential marketing future. This study is quite supportive of the venture, it is reported.

Mr Bannon said SATCO wuld incur, a “fair loss” if it pulled out of the venture although this would depend on how the withdrawal was made. The South Australian Opposition Leader, Mr Olsen, said the state’s taxpayers stood to lose millions of dollars through the collapse of IPL. He said the report raised serious questions about the government’s decision to invest in the company in the first place through SATCO.

Mr Olsen said both the initial sAust3.6M (SNZ4.4M) investment and an SAustllM ($13.5M) debenture loan were in jeopardy. He said the government must immediately make a full statement about its attitude to the future of its investment. “It should ask the Audi-tor-General to invesigate

the current financial position, why it has deteriorated so alarmingly, and why the South Australian Government ever made this investment in the first place.”

The accountants* report says the Government through SATCO would need to inject sAust2.sM (INZ3M), into the company to allow it to continue trading.

This would mean the Government, after the sale of the company’s assets, would face a potential loss of around sAustlO.sM (SNZI2.9M) if IPL continued to trade unprofitably. SATCO already spent sAust3.6M (INZ4.4M) as an initial investment in IPL, and last financial year lent the company SAustllM (1NZ13.5M) as a debenture. The Peat Marwick report says there may be grounds to challenge the validity of the debentures; these may be unsecured. The report criticises IPL for the level of its management expertise, staff morale, poor accounting procedures, the amount of unused assets and high tax loss. Legal action could be taken against IPL officers,

who could be personally liable for the firm’s debts, the Peat Marwick report warns. “If a company continues to trade while it is in an insolvent position action could be taken against the officers, including the directors, managers, and secretary.” It also suggests those responsible for the appointment of those officers could be liable. Payments to unsecured creditors totalling about sAustl.BM (SNZ2.2M) are due at present, and the report warns many of the creditors have threatened legal action to recover the amount owing, although the accountants say they are not aware of any claims against the company to date. Peat Marwick’s report says: “Given the low level of unsecured creditors in relation to the loan we feel a structured run down of the business, employing your own management team would be preferable to having the unsecured creditors apply to the court to wind up the company.” The report says the job of assessing the current financial position if IPL was made difficult by the

incomplete state and condition of accounting records. , - . . It says IPL had not produced monthly operating reports and was only now beginning to implement a creditors’ system. The accountants’ report says staff morale and motivation are at a low level and this will have an effect on the company’s performance. “The company Is In jeopardy of losing several of its key employees.” The accountants say New Zealand’s corporatisation of rail and forest assets may increase IPL’s costs. They say the company has a substantial taxation-loss-carrled-forward provision. “As at March 31, 1987, we estimate a balance available to offset against ‘ future profits of sAust4.4M (SNZS.4M). They recommend IPL’s surplus assets be sold immediately. The Greymouth region has already been hit hard by job losses this year. One hundred of the 177 workers at the Strongman State coal mine lost their jobs in March when the new owner, Coal Corporation, began trading.