Whitcoulls 3c payout to be challenged

Administrators of failed book retailer Red Group can expect to be challenged on their offer of a 3c payout when they meet with the company’s unsecured creditors this morning.

Australian-based accountancy firm Ferrier Hodgson will ask the failed book retailer’s unsecured creditors, owed $21.5 million, to accept 3 cents in the dollar, instead of liquidation, in a deed of company arrangement (DOCA).

But opponents say creditors are unhappy with the slim payout and haven’t had enough time to digest the options in a complex 90-page report and should be asking questions about the issuing of the group’s general security agreement in December

Auckland-based liquidator Damien Grant, of Waterstone Insolvency, said three cents in the dollars an insult and will encourage creditors to reject the offer, place the company in liquidation and look to the directors and the shareholder – Australian private equity firm Private Equity Partners (PEP) for a recovery.

“There is a real issue with the proposed deed of company arrangement. The administrators have, in my opinion, failed to adequately address the concerns surrounding the granting of a security to the shareholder, Pacific Equity Partners, in December,” he said.

Details of the grounds for which the December security can be challenged will be outlined in a document ‘Five reasons to vote no’ to be circulated at the meeting.

Mr Grant said a liquidator could investigate the company for reckless trading and this won’t happen if DOCA is passed today.

Waterstone has suggested large debt, shared by the book store chains, to Red Group's ultimate owner PEP could provide grounds for a reckless trading claim, which can't be investigated if the DOCA is passed this morning.

Liquidation would not unwind the recent sale of the group’s Whitcoulls and Borders bookstore chains to the James Pascoe Group.

To pass the DOCA needs the support of 50% of total creditors and 75% support by dollar value.

PEP is expected to support the DOCA.

Ferrier Hodgson, which has earned $3.2 million in fees from the four-month administration, says the prospect of dividend payments is slim under liquidation and has recommended creditors support the offer for 3c, made in a deed of company arrangement that makes $A3.14 million available to creditors.