Almost 3500 investors with about $130 million invested in debentures with Sydney businessman Michael O’Sullivan’s Provident Capital face the prospect of the company going into receivership this week.
The court had already effectively frozen the investors’ money, ordering Provident not to pay any money to debenture holders – although it also protected others from being caught up in the tangle by forbidding the company from accepting new investment.Know more? Contact Ian McIlwraith
Insider has not been able to get in touch with O’Sullivan, who according to company records appears to own all of the company that owns all of the shares in Provident, but reports last week had him asserting that the company was still viable.
Insider hears, though, that Federal Court judge Justice Rares sat until 8pm on Friday night, finalising three days of hearings in action brought by IOOF Holdings’ offshoot Australian Executor Trustees (AET) against Provident.
He appointed PPB Advisory’s Philip Carter, Brett Lord and Marcus Ayres as receivers and managers, but stayed the execution of his orders until tomorrow to allow Provident time to consider appealing the decision.
To get that leeway, though, Provident has had to give undertakings including provide immediate access to the trustee and its representatives of all books, records and computer passwords. It has also agreed not to make any payment or commit to any further transactions until 4pm tomorrow.
From what Insider can tell from the limited court records obtainable, the trustee AET went to court in early June against Provident.
The then sitting judge, Justice Jacobson, granted orders that the proceedings be held in a closed court, that the names of the parties were kept secret and described as “A” and “X”, and that public access to the court documents was denied until further hearing.
The Australian Securities and Investments Commission, which regulates Provident’s deposit and lending activities, has also intervened and been granted status as a “friend of the court”.
It is believed the trustee acted in the wake of Provident’s December half-year accounts, and reports to investors, which indicated a dramatic deterioration in its financial position.
Having reported a $1.15 million profit for the year to June 30, 2011, Provident sank to a $9.09 million loss in the December half as it provided $12.45 million against its $190 million loan book. Provident’s bottom line would have been worse but for a $3.9 million tax credit.
Possibly more alarming for its trustee, and ASIC which is supposed to protect investors, was that the company’s ratio of equity to total liabilities and equity had slumped to a tiny 2.73 per cent – compared with ASIC’s 20 per cent benchmark – as shareholders’ funds shrank from $15 million at June 30 to only $6 million by December.
Provident also revealed that almost half of its loan portfolio, by value, were in arrears – and for those in its fixed-term investment component, the debenture holders, the arrears rate was 70.3 per cent of loans by value.
It said that most of those loans in arrears were also 180 days behind, or six months. As a result, Provident had changed its policy and was looking to sell properties to recover what it could of loan amounts, having previously held off in the hope of the market values recovering.
It has been reported that PPB Advisory conducted a separate valuation of Provident’s property book for the trustee, and came to the conclusion that the worth of the properties was some $28 million below their carrying value.
One small comfort to the trapped debenture holders is that at least Provident did not pay a dividend to its shareholder in 2011 like the $2.5 million it paid out in 2010. Provident’s sole shareholder is Provident Asset Management, which is described as trustee for the O’Sullivan Trust and for the Provident Trust – although Insider cannot tell you who the beneficiaries of those two trusts are.
with Carolyn Cummins
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