Fallen Hoad moves to sue Westpac
At a creditors’ meeting on 29 August 2012 attended by WFA [disclaimer: this magazine’s publisher Boston Publishing is a creditor to Hoad], a statement from Hoad Group directors William Papapetrou and Robert Johnston explained the chain of events that led to the company’s demise.
“Hoad’s problems started in late 2008 during the GFC when Westpac believed we had breached a loan covenant, which we hadn’t and we will never accept that we had. The bank used this fallacious argument to withdraw funding previously promised as we had just acquired [ice machine business] Ice Master and [ice cream machine business] AB Commercial. We had been promised increased working capital if required, as our Loan to Interest Coverage ratios were all fine and we were a very profitable business.”
The statement went on to explain that Westpac had increased Hoad’s interest rates across its entire facility, adding that while the initial increase wasn’t material, “denying us the increase in working capital previously promised had a major long-term effect that wouldn’t be obvious for some time.”
The statement also explained that when Hoad sold its building in Glen Iris, the bank took all the profit. “When we objected, they were forced to put about $1.5m back into our accounts but only under threat of litigation.”
“We tried to move banks and had even purchased another building, in Noble Park, for which we had secured funding from another bank, but at the eleventh hour Westpac refused to release ‘our’ money so we couldn’t settle on the building.”
Westpac agreed to settle on the building but only if Hoad put all its cash on deposit into the building, leaving the company nothing to fall back on when conditions continued to worsen during the year.
The bank had also put a series of conditions on Hoad’s settlement, including an independent accountant’s review of the business at a cost of $50,000 and the withdrawal of existing facilities on 24 December 2010.
“We were again promised that we would get an entirely new facility early in the New Year (2011). We are still waiting.” Westpac is understood to have used this technicality to increase Hoad’s interest rates again to 18.75% across its entire banking facility including the mortgage on the new building.
“This meteoric rise in our interest rates to usury rates occurred early May 2011 and had the effect of simply sucking all surplus cash out of the business every month.”
Hoad’s directors and shareholders continued to contribute capital to the business to help smooth out cash shortfalls each month, as well as selling its Noble Park building, “but by early 2012 it was obvious we were heading for corporate oblivion,” the statement said.
The company attempted to raise equity from external parties and to sell the non-fabric businesses, even proposing the break-up of Hoad’s assets to make the business more attractive and more affordable to buyers; however a commercial outcome couldn’t be negotiated.
Hoad had also appointed specialist advisors Wilson Hanna to renegotiate its debt with Westpac and was still negotiating in good faith on 11 July while, it later transpired, the bank had already appointed receivers and managers.
It later also transpired that when Westpac had changed its lending criteria in 2008 it wrapped a building owned by the family trust into the debt covenant.
Appointed on 13 August 2012, administrator Brook Bird has sold all Hoad’s assets including stock and goodwill for a total of $225,000, of which the goodwill component was valued at $75,000. It is understood directors believe the stock had a net value of around $1 million. Gummerson Fabrics Pty Ltd, a wholesaler of window fabrics which distributes across Australia, bought the assets, name and all property of Hoad Textiles. It is understood Gummerson did not assume any of Hoad’s debts, only its intellectual assets and inventory.
Hoad’s directors and shareholders are taking legal action against Westpac Banking Corporation, with a legal firm having taken the case on a no win, no fee basis, a highly unusual arrangement in a case such as this against a bank. Hoad’s claim is for loss and damages.
Prior to this year, The Hoad Fabrics division of Hoad Group (a diversified portfolio of companies) had been trading successfully and continuously for over 80 years.
released: Monday, October 29, 2012
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