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’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.

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