Allied Farmers is considering “substantial” legal claims against directors, owners and officers of Hanover Group in relation to alleged breaches of duties prior to its controversial debt for equity deal last December.In a statement filed to th
Allied Farmers is considering “substantial” legal claims against directors, owners and officers of Hanover Group in relation to alleged breaches of duties prior to its controversial debt for equity deal last December.
In a statement filed to the stock exchange this morning, Allied Farmers said it would not pay Hanover $5 million due today under a contractual agreement for the purchase of Hanover Finance and United Finance assets in exchange for debentures.
Hanover Group is owned by businessmen Mark Hotchin and Eric Watson.
Allied claims Hanover’s conduct in relation to transactions executed in the period prior to completion of the acquisition constituted “serious breaches” of Hanover’s obligations under the agreement
The agreement was entered intro on November 17, one month before Hanover investors approved the transaction. The $5 million related to Hanover’s costs of exiting the business including tax and contingent liabilities arising from pending litigation.
Allied, which needs to renew debt facilities for the new financial year starting tomorrow, said it has substantial claims against Hanover that exceed the $5 million.
The company said it had informed Hanover that it had “cancelled” the agreement under the Contractual Remedies Act.
Managing director Rob Alloway said cancelling the agreement did not cancel or unwind the parts of the agreement already performed.
“Allied has the assets and the Hanover investors retain their Allied shares,” he said.
The effect of the cancellation was to “bring to an end” any future obligations under the agreement that have not yet risen unconditionally,” Allied’s statement said.
Allied’s claims
Allied claims Hanover breached its obligations under the agreement, which included not disposing any finance assets without prior consent of Allied Farmers.
“These
claims
relate
to
a
number
of transactions
where
we
have
been
unable
to
ascertain
any
sufficient
commercial
rationale
or
benefit
to
Hanover,
including
the
release
of
personal
guarantees
and
the
sale
of
assets
at
what
Allied
considers
to
be
less
than
market
value,” Mr Alloway said.
He said it appeared Hanover entered into transactions in order to
generate
cash
required
to meet its
repayment
obligations
to investors
under
the
moratorium
agreement.
“Generating
cash
in
the
manner
that
it
did, had
the
effect
of
avoiding
Hanover
having
to
utilise
the
$10
million
held
in
a
solicitor’s
trust
account
for
the
purpose
of
protecting
the
initial
payments
under
the
moratorium.
Legal action looms
Allied Farmers said it had also informed Hanover that it believed it had further substantial claims against persons who were directors and/or officers of Hanover.
“Those
rights
arise,
among
other
things,
from
conduct
that
Allied
Farmers
considers
constituted
breaches
of their
duties
to
Hanover,
all
rights
in
relation
to
which have
been
assigned
to
Allied
Farmers
pursuant
to
the
agreement," Mr Alloway said.
Shares in Allied Farmers fell to a record low yesterday. The shares have lost more than three quarters of their value since the company bought Hanover and United Finance's assets in December.
Those assets, initially valued at $396 million, have been marked down to $124 million since the deal was approved.
Allied shares fell 0.1c to 3.5c in morning trading following a 10% fall yesterday.
