Centro Properties Group (CNP), whose shareholders and debt holders agreed to a plan to wipe out A$2.9 billion ($3 billion) of debt last week, won court approval for the proposal, avoiding receivership.
New South Wales Supreme Court Justice Ian Barrett today approved the plan. He ordered Centro to hold off filing documents with the Australian Securities & Investment Commission until 11 a.m. tomorrow in Sydney to give PricewaterhouseCoopers LLP, which objected to the proposal, time to consider an appeal.
“Upsetting of any or one element could be fatal to the whole plan,” Barrett said in delivering his ruling in New South Wales Supreme Court today.
Centro has A$2.9 billion of debt maturing Dec. 15, and failure to win approval for the reorganization plan would likely have pushed the company into receivership, Centro Properties Group Chairman Paul Cooper told security holders on Nov. 22. Current shareholders wouldn’t have received any payments, he said.
PricewaterhouseCoopers LLP said the company improperly transferred A$100 million with almost half benefiting shareholders at the expense of creditors.
Once the plan is filed with ASIC it goes into effect, Centro’s lawyer Fabian Gleeson told the judge.
Centro must file the papers with ASIC before noon tomorrow to meet a Dec. 14 deadline to complete the reorganization and erase the debt before it’s due, he said.
“If this scheme falls over because of an impediment put in place at the last minute,” people may lose the A$100 million, he said. “If we can’t repay the debt on Dec. 15, we would have to put the company into administration.”
Damages as a result would run into the hundreds of millions of dollars, he said.
Centro first announced a restructuring plan in 2009 after a debt-fueled U.S. buying spree backfired when the global financial crisis caused property values to plummet and borrowing costs to soar, leaving the company unable to refinance its liabilities.
Share and debt holders of Centro Properties and listed unit Centro Retail Trust approved the restructuring last week, which will give senior lenders control of the new Centro Retail Australia trust in exchange for forgiving the company’s debt maturing Dec. 15.
Hedge funds that have bought Centro’s debt from its original lenders would own 72.3 percent of Centro Retail Australia. Centro Properties investors would get 5.03 Australian cents for each security they own. Holders of hybrid securities would receive A$20 million and convertible bond holders A$21 million, it said. The rest would be set aside to pay other creditors.
PricewaterhouseCoopers alleged the money set aside under the plan to pay Centro shareholders should have been retained to pay contingent creditors, who rank ahead of equity holders in a default.
Centro Properties, Centro Retail Group (CER) and PricewaterhouseCoopers are facing class action lawsuits from former investors who alleged the companies and their auditor misled them and the stock exchange about the full extent of both groups’ maturing debt obligations and their ability to refinance them.
Class Action Payouts
Payouts related to class action lawsuits faced by Centro and the auditor could exceed the A$10 million the company had allocated for contingent creditors in the plan, Richard McHugh, PricewaterhouseCoopers’s lawyer, told the judge last week. The company shouldn’t have allocated A$49 million for shareholders when it had a “very significant outstanding claim,” he said.
Centro’s former director Andrew Scott was fined A$30,000 in August and former Chief Financial Officer Romano Nenna was barred from serving as a director for two years after a judge found they failed to fully disclose the company’s debts in financial statements. Four other former directors and two current directors were reprimanded.
Centro’s 2007 annual report failed to disclose A$1.5 billion of short-term liabilities by classifying them as non- current, and the company didn’t declare $1.75 billion of short- term debt guarantees of an associated company, Justice John Middleton said in a June 27 ruling finding the directors liable.
Centro, which managed about A$16.5 billion of shopping malls in Australia, New Zealand and the U.S., had about A$16 billion of debt across its businesses as of Dec. 31, according to the company’s first-half results released Feb. 24.
The case is In the matter of Centro Properties Ltd. 2011/00283647. New South Wales Supreme Court (Sydney).