Creditors of Chinese forestry company left out of pocket

1.00pm

The axe has fallen for many of the Gisborne region's forestry contractors and service companies, still owed around $4 million by Huaguang.

The receivers of Huaguang Forest Ltd have confirmed they sold the region's East Coast Forestry assets for $47 million (minus costs) which they say does not allow any payments to unsecured creditors owed more than $49 million.

The assets had a book value of $134m. Industry sources put their market value at around $60-$70m at currently depressed log prices.

Receivers say poor export returns over the past few months have added to the shortfall.

They expect a shortfall to the secured creditor and accordingly, there will be no funds available to unsecured creditors.

Of the unsecured debts, the bulk were to offshore investors in the now-defunct Chinese company, said receiver Brendon Gibson, of Ferrier Hodgson in Auckland. He confirmed about $4m was owed to trade creditors, the majority of whom were operating in the East Coast.

It is understood the largest debts are owed to Works Infrastructure, Forest One logging contractors, individual logging truck owner operators and Port Gisborne (now Eastland Port).

Downstream effects are expected to hit fuel, tyre and other service providers.

As a result of the announcement, at least one owner operator looks set to have his rig repossessed in the near future, according to industry sources.

The owner of two other rigs was put into receivership earlier this month and others are expected to follow.

Proceeds from the sale are expected to only cover payments to secured and preferential creditors led by Westpac Bank, which was owed $38.8m and Inland Revenue, which was owed $128,000.

The receivers themselves look set to receive fees of up to $3.8m.

Reports filed with the companies office showed professional fees were $1.4m for the first six months only, with the final report for the ensuing eight months due to be filed about December 5.

Staff costs for six months were another $403,335.

Mr Gibson said the professional fees included legal costs and forestry consultants fees. The final report would be more specific, he said. Ferrier Hodgson has been involved in a number of other forestry-related receiverships this year, including Gisborne's Pine Sawmill.

Industry sources on the East Coast say receivers are now seeking to sue Forest One contractors for illegal strike action, but both Forest One director Andrew Montgomery and Mr Gibson declined to comment.

Mr Montogmery said he was too "gutted" by the final announcement to comment much at this stage.

The company had invested over $20m in logging gear and was still owed over $1m.

Now the new company, Ernslaw One, owned by the Tiong family, billionaires from Malaysia, had laid off half of his crews, so his confidence in the industry had slumped.

A creditor, who did not wish to be named, said all the Auckland interests had been paid.

"The bank has been paid, the receivers have taken their fees but the people of this district have once again been ganked."

There was a similar response from Tokomaru Bay's Tairawhiti Forestry Collective, which has about 15 members, six of whom are owner drivers.

"The latest news will mean a few more trucks will be lost, and a few more people will go into bankrupcy," said spokeswoman Georgina Johnson.

"If they don't pay our owner drivers, they won't be able to pay their creditors."

There would be a serious impact for them, their families and ultimately for the entire East Coast.

Murray McLeod of Coastal Logging is making a last ditch plea for political intervention.

His company still has eight remaining owner-drivers but has already lost five as a result of the Huaguang "fiasco".

He is calling on Finance Minister Michael Cullen to give his people a reprieve from back-dated tax bills and ACC levies which they have been carrying for about 18 months, since Huanguang first began to lag in its payments.

"What is needed is tax relief or interest free suspensory loans to enable everyone to keep working their way out of trouble."

If trucks were repossessed the banks lost out, the district lost jobs and infrastructure and everyone lost out, he said. There would be serious flow-on effect, he said. Dr Cullen had yet to be contacted.

Mayor Meng Foon said the debts would cause tremendous hardship for the local community.

He would be taking the issue to the Tairawhiti Regional Development Taskforce, at the earliest opportunity.

- NZPA