Allied goes after Hanover bosses, cancels $5m payment
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 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.