Receiver appointed for Terralink
15 January 2001 Media Statement
Receiver appointed for Terralink
Gary Traveller and Richard Agnew from PricewaterhouseCoopers have today been appointed receivers for the State Owned Enterprise, Terralink.
Announcing the decision, the two shareholding Ministers - Finance Minister Michael Cullen and State Owned Enterprises Minister Mark Burton - said it had been made at the request of the Terralink board.
"The board has notified us that the company has insufficient cash reserves to pay its debts as they fall due and that it would therefore be imprudent to continue to operate,” Dr Cullen said.
Terralink was established in 1996. Formerly part of the Department of Survey and Land Information, its principal business is to supply maps and other geographic spatial information services and products.
“Terralink’s current problems arise from a contract entered into in June 1999 with EDS as part of the Landonline initiative. The contract underestimated the costs and timeframes associated with this type of project and is now causing Terralink significant losses and risks.
"Last August, the Terralink board advised us that it had not been able to meet EDS contract deadlines and was incurring cost overruns," Dr Cullen said.
Mr Burton said the Crown on behalf of the taxpayer had to take a commercially prudent approach to its investment in SOEs.
"Crown ownership does not mean that the Crown steps in to provide financial support to SOEs when that is clearly not in the interests of the shareholder.
Both the board and the Crown therefore sought independent advice from PricewaterhouseCoopers on the best way forward.
“Their expert advice was that, aside from the EDS contract, Terralink is a profitable and valuable business. However, due to the continuing risks associated with the contract, the Crown should not advance further funds to Terralink. The Board therefore requested that receivers be appointed," Mr Burton said.
The Ministers said that putting Terralink into receivership offered the best opportunity to ensure that the valuable parts of the company were protected.
“The receiver will now work with the directors of Terralink to continue running the business, while deciding on the best course of action. This includes examining whether Terralink can trade out of its difficulties, or whether the business should be sold in whole or in part.
“The receiver and directors will also talk to EDS about how best to deal with the contract between Terralink and EDS," Dr Cullen and Mr Burton said.
Terralink employs around 200 fulltime staff with another 80 staff contracted to work on the EDS project.
"We expect staff reductions to be kept to a minimum, as staff are very important to the success of the business," the Ministers said.
They said any future comment on issues relating to the receivership would now more appropriately come from the receiver.
A receiver can be appointed by secured creditors who hold a debenture over a company to take control of its assets, and is able to deal with those assets to the benefit of the various stakeholders, such as debenture-holders, creditors, and shareholders. The receiver’s role is to maximise the value of the company for the debenture holder and other creditors.
The directors of the company remain in place. However, all of their powers to deal with the assets transfer to the receiver. The Board retains an important role of providing support to the receiver, and to the management and staff of the company.
The receiver has extensive powers to continue to trade the business following his or her appointment. This allows for greater opportunity to realise the assets, deal with the assets by hiving them down into a new company or other methods to maintain and maximise the value of the business. The receiver is acting as agent of the company, giving him or her wide powers to deal with the assets subject to the charge.
Gary Traveller is a Partner at PricewaterhouseCoopers, heading up the Financial Advisory Services division. Mr Traveller has around 20 years experience in corporate recovery and corporate finance in New Zealand and the United Kingdom. Recent projects include acting as receiver and manager of Foldaway Industries Ltd and as receiver to Turoa Ski Resort Ltd, and in 1994, he was appointed by the Government as statutory manager of Development Finance Corporation Ltd. He has also advised major corporates such as IBM and BP on corporate finance issues. Mr Traveller has a BCA from Victoria University, and is a member of the Institute of Chartered Accountants of New Zealand, and of INSOL international.
Richard Agnew heads the Business Recovery Services Group for PricewaterhouseCoopers in New Zealand. He has 12 years in the business recovery services industry in New Zealand and overseas. He has acted as a receiver to a large number of public and private companies, including Allan Clarke Motors Ltd, and DML Resources Ltd. Mr Agnew has a BCom from the University of Auckland, and is a member of the Institute of Chartered Accountants of New Zealand, South African Institute of Chartered Accountants, INSOL New Zealand, the Society of Insurance Receivers, and the Institute of Directors.
Background: State-Owned Enterprises
The State-Owned Enterprises Act 1986 set up State-Owned Enterprises (SOEs) to improve efficiency in government trading operations, such as telecommunications, postal services, railways, broadcasting, and electricity generation and transmission.
SOEs are owned by the Government but operate as commercial and socially responsible businesses. They have their own boards of directors, which take full responsibility for running the businesses. Each year, SOE Boards of Directors prepare a “Statement of Corporate Intent” (a three-year plan for the SOE) and an Annual Report.
SOEs have the principal objective of operating as successful businesses. All SOEs are registered as companies and are bound by the provisions of the Companies Act.
Chief executives of SOEs are accountable to their respective governing boards and the directors exercise their duties in the same way as companies. The board of directors of an SOE is accountable to the Shareholding Ministers for the performance of that SOE.
The Ministers are shareholders, not the managers of the SOE. The boards have full responsibility for decisions on resource use, and for pricing and marketing the goods and services they produce.
The majority of SOEs operate in deregulated markets and are on equal terms with the private sector.
History of Terralink Ltd
Terralink formally incorporated as a company (taking on the commercial functions of the Department of Survey and Land Information).
Property Services Division sold.
EDS contract signed by Terralink’s Board on 16 June.
August 2000 – September 2000
Terralink advised Ministers of concerns over the EDS contract and asked for extra funds to cover the costs incurred from delays in the contract. Ministers and officials asked for additional information to support the advance of these funds.
Officials appointed KPMG to provide an external review of the information obtained from Terralink. KPMG advised that the EDS contract was creating significant risks for Terralink.
Terralink notified shareholding Ministers that it would not be able to continue operations without additional funds. Ministers advanced a secured Crown loan of $1.5 million to give Terralink the opportunity to explore alternative revenue streams. At the same time, Gary Traveller from PricewaterhouseCoopers was appointed to review the company’s position and provide ongoing monitoring for shareholding Ministers.
Gary Traveller reported back to shareholding Ministers recommending no further advance due to the ongoing risks associated with the EDS contract and the impact this would have on other revenue streams.
Terralink’s Board requested that Terralink be put into receivership.