EMBATTLED animal drug manufacturer Chemeq Ltd has been placed in administration and receivership after an appeal to overturn a court ruling ordering the company repay $60 million to its creditors failed. Chemeq, which placed its Rockingham facility on care-and-maintenance earlier this year, had its entire production and maintenance staff walk out last month, with maintenance covered by external contractors “on an as-required basis”. Chemeq was unable to hire new staff under its undertakings with the bondholders. The company had received a $75 million refinancing proposal from St Georges Terrace banker, International Finance Corporation of Australasia Pty Ltd, earlier this year. Unfortunately for Chemeq, the administrative costs of $215,000 for the proposal proved too much for the Supreme Court, which ruled it was more important that the orders governing its activities were maintained until the appeal was handed down. The company’s legal woes resulted from an arrangement with US bonds trader Stark Trading and Harmony Capital Partners, which had issued convertible bonds to the company worth $50 million and $10 million respectively. A condition of the contract was that Chemeq achieve total gross revenue of at least $4 million for the year ended June 30 2006. Chemeq’s income statement for the 2005-06 financial year shows a revenue of $4.1 million, however the company’s independent audit report identified uncertainty about the validity of a $1.5 million contract with Chemeq’s South African distributor, Inviro. Inviro refused to pay the company, saying the terms of a sales agreement between the two had been altered. While Chemeq was pursuing legal action against Inviro, it argued in the Supreme Court it could book the $1.5 million as revenue since product delivery was made and accepted by Inviro at the time. Stark and Harmony disagreed, seeking immediate repayment of the bonds on the grounds Chemeq had violated its revenue covenant. Chemeq shares have now been suspended. -Andrew Hobbs
