RCR Tomlinson’s secured creditors may only receive around $70.6 million of the $230 million they are owed, and its unsecured trade creditors are likely to receive none of the $170.6 million they are owed, as administrators McGrathNicol recommended the failed engineering firm be liquidated.
RCR Tomlinson’s secured creditors may only receive around $70.6 million of the $230 million they are owed, and its unsecured trade creditors are likely to receive none of the $170.6 million they are owed, as administrators McGrathNicol recommended the failed engineering firm be liquidated.
In a report released to creditors, McGrathNicol said the approximately 4,400 unsecured creditors, as well as shareholders, would not receive any of what they are owed if RCR went into liquidation, as not enough was raised from asset sales to pay off secured creditors.
The administrator said funds of between $72.5 million and $156.5 million were estimated to be available for distribution to secured creditors.
RCR’s secured creditors are the Commonwealth Bank of Australia, HCC International Insurance Company, MUFG Bank, Swiss Re International SE and Chubb Insurance Australia.
McGrathNicol also said RCR may have become insolvent “prior to the end of October 2018 or possibly earlier”, at least a month before it went into administration on November 21.
RCR went into administration because its secured creditors refused RCR's request to increase its existing overdraft facility by $86 million.
In the event that the company is placed into liquidation, and insolvent trading is found to have occurred, the directors would be personally liable for the debts incurred during that time.
At the time RCR went into administration, the board was chaired by Roderick Brown, with four other directors – Bruce James, Lloyd Jones, Sue Palmer and David Robinson.
Mr James served as the interim chief executive after Paul Dalgleish stepped down from the role on August 7.
McGrathNicol said indicators of insolvency were apparent in RCR from as early as August 2018, after costs blew out by $57 million on its Daydream and Hayman solar farm projects in Queensland, which caused a drastic change in the projects’ collective forecast, from a $28.5 million profit to a $28.5 million loss.
On August 28, the company announced a $100 million capital raising, which McGrathNicol said RCR thought would be sufficient to address the issue.
“Significant overruns were identified in the Daydream and Hayman solar farm contracts and those overruns were forecast to render the projects unprofitable,” McGrathNicol said.
“At that time, management and the board considered that the cost overruns were isolated to these two projects.
“However, further cost overruns had been identified on those and other projects by the end of October 2018.”
On November 16 2018, Quinn Emanuel Urquhart & Sullivan filed class action proceedings against RCR on behalf of shareholders in the Supreme Court of New South Wales, alleging RCR was aware, or should have been aware, of its problems linked to solar farm projects before announcing them to the market at the end of August.
A liquidator, if appointed, would investigate the exact date that RCR became insolvent and report any offences by directors to the Australian Securities and Investments Commission.
A second meeting of creditors will be held in Sydney next Tuesday.
A specific meeting for creditors of the asset maintenance and heat treatment businesses will take place in Perth the same day at the Duxton Hotel.
McGrathNicol’s report also revealed that RCR’s directors may be in breach of section 180 of the Corporations Act, which requires “care and diligence” from directors, as RCR acquired 15 solar projects worth a total of around $1.5 billion within the space of 18 months, without changing its governance or risk structures.
It said RCR did not accurately forecast the projects costs, and the projects appear to have been underpriced.
Consequently, the margins, which were already lower than traditional operating margins, were eroded.
The administrators said that eligible employees would receive payment from the federal government’s Fair Entitlement Guarantee Scheme.
McGrathNicol said its initial focus was to sell the RCR Group as a whole, excluding the solar business unit, prior to the Christmas holiday period.
However, there were no offers for the business as a whole, so it decided to split up the business to sell it off.
It sold the last of RCR’s Western Australian assets in February.
