Penny-dreadful stock Allied Farmers is teetering closer to the abyss after the Inland Revenue Department issued a statutory demand for $3.7 million in outstanding debt and adding another default event to the failed finance company.
The tax department is requiring payment from Allied Farmers Rural within 15 working days of February 14, when the company advised IRD it was in talks with its secured lender Crown Asset Management.
The demand is another enforceable event and comes two weeks after an unnamed secured lender made a call on a $500,000 debt. Allied has until the end of the week to come up with a way to fend off its secured lender's call.
The Hawera-based company says it believes it can come up with a proposal for repayment on terms that will satisfy the tax department, and with support from CAM, "given that the continued trading of AFRL (Allied Farmers Rural) would ultimately result in a superior return for both".
In December 2011, Allied Farmers Rural sold its livestock business, with $280,000 of assets, for shares in a wholly owned subsidiary, New Zealand Farmers Livestock.
It then sold part of that company to a company owned by employees of Allied Farmers Rural, and issued more shares to Allied Farmers Rural's livestock agents, leaving it with 68 percent of the new company.
Those transactions were settled on a cash basis with a valuation of the livestock business at $7.5 million.
Allied's latest annual report shows it has not met the lending covenant to pay all taxes in 2011 and 2012.
Auditor PwC gave a 'Disclaimer of Opinion' on the company's 2012 annual report, saying there was insufficient evidence the group will generate enough cash from asset sales, reach agreement with some of its creditors, retain the support of its secured lender and find new funding.
The IRD demand is the latest in a string of misfortunes for Allied since its disastrous 2009 debt-for-equity swap with Hanover and United Finance.
Shares in Allied sank 40 percent, or 0.8 of a cent, to 1.2 cents, valuing the company at just $1.8 million.