PPP Creditors Get Money Back
16 January 2000
A compromise arrangement, wrought between the directors and creditors of an insolvent company, has proven to be a rare, complete and satisfying solution for the parties involved. The Compromise Manager, Graeme McDonald of McDonald Vague & Partners, ended up making eight distributions and paying back all creditors in full.
The situation began in 1996 when PPP Industries Limited (previously trading as Perfect Poultry Processors Limited) became insolvent. In April of that year it entered into an arrangement with its creditors to repay all outstanding debts. Debts were in excess of $500,000. The company had been involved in the manufacture of plant used in the poultry and dairy industries, and sold in New Zealand and a number of Pacific Islands.
Senior partner of insolvency firm McDonald Vague & Partners, Graeme McDonald, was asked to step in when the company became insolvent. On careful scrutiny, he believed that a compromise arrangement was possible.
A compromise between creditors, he says, can be a better alternative than a receivership or liquidation.
“The objective is to ensure that the amount which creditors will receive will be higher in a compromise than in a liquidation,” he says. “But all creditors have to sign on to the deal, agree to abide by the rules and take no action to precipitate liquidation. Therein lie the main difficulties.
“McDonald Vague & Partners will only take on such assignments where the partners are personally satisfied that the proposal is achievable.”
In this Compromise as is usual, the creditors formed a committee to work alongside the Compromise Manager for the benefit of all creditors. The directors and shareholders were determined the compromise would work.
The compromise began with assets of PPP Industries Limited being sold to a new company PPP Industries (1996) Limited for the amount of debt owed to creditors. The new company continued to trade and made regular repayments to the compromise manager. Progressive dividends were made to creditors after the bank and preferential creditors had been repaid in full.
“It is not always possible to conclude a compromise in a manner acceptable to all creditors,” says Mr McDonald. “This makes the solution for PPP very satisfying indeed. Hard work by the new company and the directors, and the goodwill of creditors of PPP Industries Limited have enabled the company to continue through difficult times, and to meet its obligations in full.”
McDonald Vague & Partners was established in 1989 as New Zealand’s first specialised insolvency practice. It remains the largest national practice solely focused around insolvency in New Zealand.