Embattled Chemeq Ltd has announced that it will shortly be lodging an application with the Supreme Court of Western Australia for a declaration that it has met the revenue covenant set out in the Convertible Bond Deed Poll for the 2006 financial year.
Embattled animal pharmaceutical products manufacturer Chemeq Ltd has announced that it will shortly be lodging an application with the Supreme Court of Western Australia for a declaration that it has met the revenue covenant set out in the Convertible Bond Deed Poll for the 2006 financial year.
On 25 October, Chemeq announced that it had received Notices of Redemption from US bond trader Stark Trading and its associates pursuant to clause 12.2 of the Convertible Bond Deed Poll.
In the Notice, Stark alleged an Event of Default had occurred in that Chemeq had failed to achieve total gross revenue of at least $4 million for the year ended 30 June 2006.
Stark had sought repayment within 10 business days of its convertible bonds, which have a face value of $50 million.
Chemeq firmly believes this covenant has been satisfied, but this has been disputed by some convertible bondholders.
The company is now seeking endorsement of its position by seeking a Court declaration that the revenue covenant has been satisfied.
The parties have agreed to effectively maintain the status quo until 15 November 2006, when it is expected the Court will hear Chemeq's application for an injunction restraining Stark from relying on the Notices of Redemption pending determination by the Court of whether Chemeq has satisfied the revenue covenant.
Chemeq Chief Executive Officer David Williams said "We have elected to seek this Court declaration to clear up any doubt about the validity of our position."
"We are very disappointed Stark has adopted this stance, especially given lengthy discussions between us over a period of months in relation to the convertible bond terms.
"Our position in this matter is that we will clearly act in the best interests of all of our shareholders, hence the application for the Court declaration."
The claim was prompted by a dispute over a $1.5 million sales contract with Chemeq's South African distributor Inviro. Chemeq believes that the $1.5 million could be booked under accounting regulations since delivery was made and acepted by the customer.
However, in Chemeq's 2006 Annual Report, Ernst and Young said it was unable to verify whether the $1.5 million sales contract would be realised.
"There is currently a dispute as as to whether the terms of the sales agreement has been varied, which raises doubt as to the appropriate timing for the recognition of these sales," the independent audit report said.
"There are no alternative audit procedures which can be employed to verify the timing of recognition of these sales transactions. We are therefore unable to determine whether the sales recognised by the company and consolidated entity of $1,469,895 are fairly stated for the year ended 30 June 2006.
"Furthermore, if these sales did not qualify for recognition, the company and consolidated entity would be in default of one of the milestone covenants under agreements with bondholders."
Chemeq shares are at 20 cents this morining.
